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Should I buy Next shares while they’re below £65?

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I reckon Next (LSE: NXT) is one of the UK’s strongest retailers. The business offers clothing, footwear, accessories, beauty and home products. And it’s a hybrid operation with revenue coming from online sales and via its store estate. Last year, around 66% of revenue came from the online operation.

There’s a lot of strength in the brand. And the company has an impressive history of growth.

However, investors’ perceptions about the looming cost-of-living crisis have soured the progress of the shares. They sit at around £58 as I write. That’s down from last year’s all-time high just above £80. But the stock tempts me while it remains below £65.

Potential for upside surprises

My feeling is the cost-of-living crisis may not prove to be as bad as expected. Many commodity prices have been falling along with container shipping rates. And that could help to put downward pressure on price inflation going forward. On top of that, the government’s recent intervention in the energy market could help stretched consumers.

My guess is there’s potential for Next to surprise the market to the upside. In other words, sales ahead could be stronger than analysts expect. And the company could issue outlook statements that sound more optimistic than thought possible a few weeks ago.

Of course, I could be wrong in my assumptions. And it’s worth me bearing in mind that all shares carry risks as well as positive potential. Businesses can suffer operational setbacks at any time. However, we’ll find out more about current progress when Next issues its half-year report on 29 September. And I’ll be keen to read that.

Meanwhile, City analysts expect strong advances in the shareholder dividend. And the forward-looking yield is running at around 3.4% for the trading year to January 2024. I think that’s attractive if growth in earnings does gain momentum in the months and years ahead.

Trading has been steady

Next issued a positive trading statement on 4 August. And that strikes me as a good base upon which to build. Sales were a little higher than expectations. And the company reckons part of the reason for that could be failing competitors. Customers have fewer choices because many other company’s stores have closed.

However, a lot of the strength in the business comes from the firm’s vast online presence. And that helped the business to remain in good shape through the challenges of the pandemic. I reckon the resilience of the operation shows up in the ongoing dividend payments and the company’s programme of share buybacks.

Therefore, I’d look at the current dip in the share price as an opportunity to take a contrarian position in the shares of a robust FTSE 100 stalwart. However, I could be wrong to be optimistic about Next’s prospects. Nevertheless, I’d add the stock to my diversified portfolio to hold for the long term when I have some spare cash.

The post Should I buy Next shares while they’re below £65? appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.