04-23-2017, 09:49 PM
(01-05-2017, 11:47 AM)DividendDragon Wrote: Hi all,
I just wanted to ask others experiences of buying struggling companies.
I first bought into Next PLC (a UK clothing retailer) at £68 a share (too expensive admittedly), then again at £51, again at £48 and again at £44.
After lowering guidance yesterday shares are down to £41.
Now I love this company - it has superior margins (20% net profit margin) over its competitors and robust free cash flow.
The only problem? - Sales are falling! With profit before tax down 3.6% this year and EPS down 0.6%
Free cashflow is also down to around £360mn from around £500mn the year before (after investing more in its online offering)
The company is blaming the fall in the pound for increased costs and thus the need to increase its prices by 5% and Brexit for knocking consumer confidence and spending.
This trend will almost certainly continue into next year and analysts (for what their word is worth) are saying that there will likely be further downward estimates in Sales, Profit and Cashflow.
The worst thing - the company has stopped buying back its own shares!
Next has a long history of buying back shares with it's spare cash at under £68 but the management has now said it will pay out spare cash in special dividends.
So I'm left with a tough choice: Buy more or just hold.
I'm already at 120% of a position and I have to admit I'm hesitant to add more because I'm just not comfortable but this price just seems too good.
Do I continue to believe in this struggling retailer or are my rose tinted glasses as a shareowner blinding me from the fact that maybe people just don't like buying clothes from Next anymore?
Lewys
FrugalStudent
Downward sale, profits and cash flow projections on a company that is already down 30%?
I'd be gone like a turkey through the corn!