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Subsequent’s (LSE: NXT) share worth is up 47% from its 25 July one-year low.
I’m not stunned, because the FTSE 100 style, residence and sweetness merchandise retailer has delivered persistently sturdy outcomes over the interval. Within the full-year 2024/25 numbers launched on 27 March, it broke the £1bn barrier for revenue earlier than tax.
This got here on the again of an 8.2% enhance in gross sales over the monetary yr, to £6.321bn. Consequently, pre-tax earnings per share jumped 11.6%, to 845.2p.
Its Q1 2025/26 replace printed on 8 Could confirmed gross sales rising 11.4% yr on yr. This in comparison with its forecast of a 6.5% enhance.
Following this, the agency raised all its key efficiency forecasts for this full monetary yr. Gross sales at the moment are anticipated to extend 6% (from 5% beforehand), and revenue earlier than tax to rise 6.8% (from 5.4%). Moreover, pre-tax earnings per share are projected to leap 10% in opposition to the sooner 8.8%.
What’s the key right here?
Subsequent highlighted the important thing drivers to its success in its 2024/25 outcomes announcement.
One is the event of the Subsequent model to develop past the constraints of its personal infrastructure.
This has been achieved by tapping into abroad third-party distribution networks. It has enabled its worldwide web sites to develop gross sales by 350% during the last 10 years.
The opposite is constructing out the Subsequent Platform past the attain of the model to incorporate different companies’ merchandise. Which means that 42% of its on-line gross sales within the UK will not be Subsequent-branded merchandise.
The online results of all that is that the enterprise is rising on a number of fronts. It has new routes to worldwide markets, new abroad markets, new third-party manufacturers on the platform, and new wholly-owned manufacturers and licenses, amongst others.
That’s all nice, however what in regards to the share worth?
There is no such thing as a doubt in my thoughts that Subsequent is an efficient enterprise. However that doesn’t imply I’ll pay any worth for the inventory.
A threat to the agency’s future earnings is from the extraordinary stage of competitors within the sector. One other is from any additional surge in the price of dwelling in its key markets. This would possibly deter clients from shopping for its merchandise.
On the share worth itself, the important thing query for me is that if any worth stays following its rise this yr.
Beginning with the price-to-earnings ratio, Subsequent could be very overvalued at 18.9 in opposition to its peer group common of 12.8. This contains Abercrombie & Fitch at 6.6, Frasers Group at 9.7, Marks and Spencer at 13.9, and H&M at 21.1.
It additionally seems very costly on its price-to-book ratio of 8.5 in comparison with its rivals’ common of two.9.
The identical is true of its 2.3 price-to-sales ratio in opposition to the 0.7 common of its friends.
I ran a reduced money circulate evaluation to determine what these all imply for the inventory’s worth. Utilizing different analysts figures and my very own, this reveals Subsequent shares are 30% overvalued at their present £126.35 worth.
Subsequently, their truthful worth is £97.19, though market vagaries might transfer them decrease or greater.
I by no means purchase shares that look overvalued on each key measure I most belief. Nevertheless good an organization it might be, Subsequent seems very costly to me, so I cannot purchase it.
