Many FTSE 100 stocks have experienced mixed fortunes in recent months. Macroeconomic volatility and geopolitical events have hampered many businesses.
One stock I think investors could consider buying is Next (LSE: NXT). Here’s why.
Next shares on the up
Next shares have been on a great run in the past year. As I write, they’re trading for 7,280p. At this stage last year, the shares were trading for 5,258p, which is a healthy 38% increase over a 12-month period.
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
If I look through FTSE 100 stocks on my watch list, as well as the wider index, I’m hard pressed to find many shares doing this well.
It seems to me like Next’s brand power, well-run operations, and a leadership team making all the right calls are doing wonders for the business.
Challenges that Next and FTSE 100 stocks face
Make no mistake, Next may be on a good run but there are still credible challenges it must navigate.
Soaring inflation and rising interest rates have created a cost-of-living crisis. Although Next seems to be handling this well to date (more on that later) it could face issues, including the National Living Wage. Any hike could put pressure on staffing costs throughout its head office, back office, retail, and warehouse operations. This potential higher cost could impact its performance and any investor returns.
Falling inflation could put pressure on Next’s margins, which have boosted the business in recent times. Easing cost pressures from falling inflation could boost its coffers but if it lowers prices to reflect a more moderate inflation level, then performance and sentiment could be affected.
Why Next shares look good
Next’s recent performance has been impressive, especially when compared to other struggling retailers like ASOS and boohoo. Its most recent half-year report for the period ended July 2023 was released in September. The key headlines for me were all pleasing. Group sales, profit before tax, and earnings-per-share all rose compared to the same period last year.
In addition to positive performance, Next shares look decent value for money even after its recent share price increase. They trade on a price-to-earnings ratio of 12. Looking through FTSE 100 stocks, the average ratio for the UK’s premier index is 14. Furthermore, a passive income opportunity with a dividend yield of 2.8% is enticing. However, I do understand that dividends are never guaranteed.
Finally, Next seems to be reaping the rewards from investment and key operational decisions. A prime example of this was around optimizing its online offering. The rise of online shopping means that retailers like Next must move with the times. It has invested in its app, website, and marketing channels to remain relevant, be more user friendly, and technically more reliable. This is reflected in its boosted online sales as stated in its recent results.
To conclude, while FTSE 100 stocks endure mixed fortunes, Next seems to be on the up. I believe the shares could continue to climb yet.
