Is Now the Time to Buy Next?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at Next  (LSE: NXT  ) to determine whether you should consider buying the shares at 4,157 pence.

I am assessing each company on several ratios:

  • Price/Earnings (P/E): Does the share look good value when compared against its competitors?
  • Price Earnings Growth (PEG): Does the share look good value factoring in predicted growth?
  • Yield: Does the share provide a solid income for investors?
  • Dividend Cover: Is the dividend sustainable?

So let's look at the numbers:

Stock

Price

3-Yr. EPS Growth

Projected P/E

PEG

Yield

3-Yr. Dividend Growth

Dividend Cover

Next

4,157p

34%

14.7

0.8

2.3%

36%

2.6

The consensus analyst estimate for next year's earnings per share is 282 pence (19% growth) and dividend per share is 101 pence (12% growth).

Trading on a projected P/E of 14.7, Next appears to be more expensive than its peers in the general retailers sector, which are currently trading on an average P/E of around 13.6.

However, Next's P/E and high double-digit growth rate give a PEG ratio of around 0.8, which implies the share is underpriced for the near-term earnings growth the firm is expected to produce.

Offering a 2.3% yield, the company's income is slightly below the sector average of 2.9%. However, Next has a three-year compounded dividend growth rate of 36%, implying the yield could soon catch up to that of its peers.

Indeed, the dividend is two-and-a-half times covered by earnings, giving Next plenty room for further payout growth.

Lastly, Next is returning cash to shareholders through a share buyback scheme. During 2012, Next returned 241 million pounds to shareholders by buying back just under 5% of its shares.

Next looks expensive compared to its peers; is this justified?
As I say, Next looks relatively expensive compared to its peers. However, I believe the premium is justified as Next continues to outperform its competitors, achieving rapid earnings growth in a generally tough retail environment.

Indeed, while the majority of high-street retailers struggle, Next reported within its January trading statement that sales in the fourth quarter were up 3.9% across the whole group. Furthermore, sales were up a similar 3.9% for the whole year.

That said, it should be noted that the majority of this sales growth was online, where sales grew 11.2%. Sales in high-street stores, however, grew by only 0.8% for the same period.

Nonetheless, Next continues to streamline and grow its high-street presence, closing down underperforming shops and opening new, larger stores in better locations.

For example, for the half-year to July 2012, Next closed three stores that amounted to 20,000 square feet of retail space, but added three new stores in more advantageous locations, so creating a further 40,000 square feet of retail space within the company's portfolio.

So all in all, taking into account Next's solid earnings growth and continuing success in the retail sector, I believe now looks to be a good time to buy Next at 4,157 pence.

More FTSE opportunities
As well as Next, I am also positive on the FTSE 100 share highlighted within this exclusive free report.

You see, the blue chip in question offers a 5.7% income, its shares might be worth 850 pence compared to about 700 pence now -- and it has just been declared "The Motley Fool's Top Income Stock for 2013"!

Just click here to read the report -- it's free.

In the meantime, please stay tuned for my next verdict on a FTSE 100 share.

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