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The Next share price is up 15% in a month. Here’s what I’d do

Senior couple crossing the road on a city street. They are walking with shopping bags while Christmas shopping.

The Next (LSE: NXT) share price held up well during the pandemic, despite the damage lockdown inflicted on the high street. It has found the cost-of-living crisis more of a challenge though.

Over the last 12 months, the Next share price has fallen 27%. Today though, it’s on a roll. The stock is up 15.71% in the last month.

The share price still tempts me

Next has been partly boosted by wider investor optimism, which has seen the FTSE 100 pick up generally. It has also been lifted by the feeling that, once again, it has the resilience to overcome current challenges.

Investors piled back into Next in the wake of last month’s positive full-year guidance, which suggested the stock was oversold. This showed full-price Q3 sales up 0.4% in the 13 weeks to 29 October, marginally beating expectations.

Next is now on course to deliver full-year pre-tax profit of £840m. That’s up 2.1% on the year, which I consider impressive, given the chaos out there. Earnings per share rose 4.5% to 554.5p. When temperatures dropped in early autumn, sales of woollies and winterwear jumped. The current cold snap should give it an even bigger boost.

Good companies often thrive in bad times. Next has been taking advantage of weakness elsewhere in the fashion industry, snapping up insolvent Joules for £34m in cash. It bought the Joules head office too, for £7m, also in cash.

That’s the advantage of running a tight ship, as Next does. It allows management to turn sector troubles to its advantage. It’s good news for Joules too, with founder Tom Joule retaining a 26% stake. And it is a huge relief for staff, with 1,450 jobs saved. There will also be synergies, as Joules will benefit from Next’s Total Platform infrastructure.

This is a FTSE 100 winner

Before that, Next bought Made.com out of administration for £3.4m. The group’s sheer scale should give the brand the stability it needs while also cutting supply chain costs. Once Next brings its retail skills to bear, both Joules and Made.com could thrive.

These are tough times for retailers as input costs rise, with heating and lighting brick & mortar stores an added burden. On the other hand, Next may benefit from the stronger pound, which could reduce the cost of imported materials.

Some of today’s concerns are in the price, with the Next share price hovering around 11 times earnings. Operating margins are a healthy 20.6%. It would be nice to see it fight back from current troubles, just as it fought back from Covid. Earnings per shares rocketed 138% in 2022 after stores reopened.

While the upcoming recession is set to drag on, it will end at some point. And Next looks in a better position than most to benefit when it does.

The stock currently yields 2.2%, covered 4.2 times earnings. My personal focus right now is on buying high-yielding dividend stocks. If I had more cash at my disposal today, I’d buy Next too. Can’t have everything, I’m afraid.

The post The Next share price is up 15% in a month. Here’s what I’d do appeared first on The Motley Fool UK.

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Harvey Jones doesn’t hold any of the shares mentioned in this article. 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.