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All things considered, the FTSE 100 index is having a great year — up 11% as I type this.
But some of its members aren’t faring quite so well. And there’s one stock in particular that could be in for a rough ride next month.
Not looking good
B&Q and Screwfix owner Kingfisher (LSE: KGF) is down to report its latest set of half-year numbers on 23 September. Personally, I’m a bit cautious about what the market might make of them.
Shares in the £5bn cap business have been pretty volatile of late. Positive momentum in the first half of the year — helped by some encouraging Q1 figures in May — has been lost. Much of this may be down to analysts getting (even more) pessimistic about the UK economy and speculating that cyclical sectors like DIY could suffer as real wage growth slows and unemployment concerns increase.
Perhaps this helps to explain the current popularity of this company among short-sellers — those betting a stock will fall in value.
All in the price?
Of course, no one knows for sure where share prices are going. If Kingfisher’s results are even slightly better than anticipated, the share price should rise, especially as the valuation isn’t exactly excessive. Anyone buying today would pay the equivalent of 12 times forecast earnings — a little below the average in the UK stock market’s top tier.
As things stand, there’s a 4.7% dividend yield too. That’s pretty chunky.
However, the lack of hikes to the total payout in the last few years takes some of the shine off. This, when combined with cost pressures and the rather gloomy outlook, forces me to regard this business as one of the less attractive options in the retail space.
Even if the the shares don’t actually ‘crash’ next month, Kingfisher is not on my wishlist.
A far better FTSE 100 stock to buy?
Another company reporting in a few weeks is bellwether Next (LSE: NXT). Interim results are due on 18 September.
In contrast to its FTSE 100 peer, the clothing and homewares seller’s share price has been going great guns this year, delivering double the gain of the index. But that rise is also justified given better-than-expected sales and multiple upgrades to guidance on full-year profit.
It doesn’t stop there. Those buying since the start of the year will have enjoyed a 158p dividend hitting their accounts at the start of August.
Throw in an extended period of warm weather in the UK — and the possibility of more shorts and t-shirts flying out of stores — and I wouldn’t blame shareholders from feeling quietly confident.
No sure thing
The only problem is that Next shares already change hands at a price-to-earnings (P/E) ratio of 17. That’s above the company’s average over the last five years (13).
The fact that this is a high-quality company — based on numerous financial metrics — still doesn’t shield it from a drop in consumer confidence either. We could easily see some volatility if inflation continues to climb.
Notwithstanding this, the £15bn cap has clearly been the better buy over the long term. Whatever happens in September, I struggle to see how that will change.
I think this warrants far more consideration.
