With EPS Growth And More, NEXT (LON:NXT) Makes An Interesting Case
It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like NEXT (LON:NXT). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide NEXT with the means to add long-term value to shareholders.
See our latest analysis for NEXT
How Fast Is NEXT Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. NEXT managed to grow EPS by 7.9% per year, over three years. This may not be setting the world alight, but it does show that EPS is on the upwards trend.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Not all of NEXT's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. The music to the ears of NEXT shareholders is that EBIT margins have grown from 16% to 19% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of NEXT's forecast profits?
Are NEXT Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
The good news is that NEXT insiders spent a whopping UK£11m on stock in just one year, without so much as a single sale. Knowing this, NEXT will have have all eyes on them in anticipation for the what could happen in the near future. We also note that it was the CEO & Executive Director, Simon Wolfson, who made the biggest single acquisition, paying UK£10m for shares at about UK£60.95 each.
The good news, alongside the insider buying, for NEXT bulls is that insiders (collectively) have a meaningful investment in the stock. Notably, they have an enviable stake in the company, worth UK£114m. This suggests that leadership will be very mindful of shareholders' interests when making decisions!
Is NEXT Worth Keeping An Eye On?
One positive for NEXT is that it is growing EPS. That's nice to see. On top of that, we've seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for your watchlist - and arguably a research priority. Still, you should learn about the 2 warning signs we've spotted with NEXT (including 1 which is a bit unpleasant).
There are plenty of other companies that have insiders buying up shares. So if you like the sound of NEXT, you'll probably love this free list of growing companies that insiders are buying.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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