Is Next’s share price a steal after its 15% fall?

Next’s (LSE: NXT) share price fall of 15% in the last four months is disappointing, but not entirely surprising. During the same period, a number of FTSE 100 shares have come under pressure, with investors seemingly unsure about the prospects for the UK and world economies. This situation could persist in the short run, and further declines in the company’s valuation cannot be ruled out.

However, after its decline, Next now seems to me to offer a relatively appealing valuation. Could it be worth buying alongside another stock which reported an encouraging update on Tuesday?

Strong performance

The company in question is supplier of aqueous polymers Synthomer(LSE: SYNT). It released a third quarter update which confirmed that it is on track to meet guidance for the full year. Its performance in Europe and North America was solid, while growth in the Asia and Rest of World segment was in line with expectations.

It believes that its product and geographic diversity make it well-placed to overcome the challenging macroeconomic and political environment which is being experienced across the globe at the present time. It has also announced a change to its organisational structure, with three new business groups set to be created from January. The company believes that the new structure will enable it to better leverage its global product portfolio, as well as exploit its R&D capabilities.

Looking ahead, Synthomer is forecast to post a rise in earnings of 7% in the current year, followed by further growth of 10% next year. With the stock trading on a price-to-earnings growth (PEG) ratio of around 1.8, it seems to offer good value for money and I feel it may post improving share price performance over the coming years.

Sound strategy

Meanwhile Next may also be able to deliver improving share price performance. The company is seeking to adapt to changing consumer tastes through a strategy that will see it focusing increasingly on leisure experiences as consumer spending gradually shifts from retail to leisure areas. As such, it is seeking to broaden the appeal of its stores to include offerings such as cafes. This could draw people into stores and lead to higher overall sales.

The company is also seeking to adapt to an increasingly online world. Shopping habits are changing, so the business is investing heavily in its website. It is also seeking to leverage its stores when it comes to online sales, with store-to-store transfers and click-and-collect becoming increasingly popular among customers.

With Next now having a price-to-earnings (P/E) ratio of around 13.8, it seems to offer good value for money given its track record of growth in difficult economic periods. Its relatively high degree of customer loyalty and its adaptability may allow it to outperform a number of its sector peers during what is a tough period for the wider UK retail sector. As such, I think now could be the right time to buy it after its recent share price decline.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Synthomer. 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.

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