The Burberry share price looks like a good bet
The Burberry share price could be on the verge of a major upswing as the firm’s profits return to growth.
The performance of the Burberry (LSE: BRBY) share price over the past four years has been like the film Groundhog Day: there have been several surges, only for it to subside to its original position.
In both 2018 and 2019, Burberry shares briefly shot up but then relinquished their gains.
Similarly, the Covid-induced collapse in the Burberry share price in early 2020 was followed by a long rally. Then came yet another slump before an ongoing uptick left it at the same level it was at the start of 2018.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Can the company find a way to break out of this stop-start cycle, or are investors doomed to keep repeating history?
The outlook for the Burberry share price
At present Burberry is facing two main problems, one short-term and one more fundamental.
Firstly, Chinese lockdowns caused sales in the country to fall by a third year-on-year in the second quarter of 2022, leading to a 16% decline in the Asia-Pacific region. This is important because the region now accounts for a majority (52%) of Burberry sales.
While this is a problem for all luxury-goods companies, which have hitherto relied on Chinese sales to power growth, there are also longer-term concerns that the Burberry brand has become stale and lost its way, losing the distinctiveness that had made it competitive with rivals such as Gucci.
Burberry’s improving outlook
Still, there are some positive signs. Firstly, as the company has itself noted, sales continue to grow strongly outside China, rising by an annual 16% on a like-for-like basis in the second quarter.
At the same time the group should receive a further boost from the weak pound, which means the money that Burberry earns from overseas will be worth more in sterling.
At the same time, Burberry has recently taken several steps to regain the foothold that it lost, hiring the highly-regarded designer Daniel Lee. While there’s no guarantee that Lee can turn things around, it’s important to remember that only a decade ago Burberry’s clothes had a very poor reputation.
If they can regain their cachet, then the prospects for the Burberry share price look bright.
Even if China’s growth permanently slows after it inevitably lifts its restrictions in the near future, economic development in other emerging markets should increase the potential size of the market for Burberry’s clothes and accessories (as well as those of the fashion industry as a whole). In that case, Burberry’s current valuation of 15.5 times forecast 2023 earnings, with a dividend yield of just over 3%, looks like a bargain.
Indeed, the recent changes already seem to have given the Burberry share price some momentum.
The stock is trading above its 50-day and 200-day moving averages.
I would therefore recommend that you immediately go long at the current price of 1,900p at £1.50 per 1p. I suggest you set a stop-loss of 1,280p, which would give you a total downside of £930.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
-
How to invest in nuclear power
We need nuclear power to go green, says Dominic Frisby. But there is a better option than huge power stations
By Dominic Frisby Published
-
Chase slashes its easy-access savings rate – is it time to switch?
The Chase easy-access savings account has proved popular with savers thanks to its competitive rate and bonus deals. But, as the rate has dropped, has it lost its charm?
By Katie Williams Published
-
What is FX trading?
Tutorials What is FX trading and can you make money from it? Rupert Hargreaves explains how it works and the risks.
By Rupert Hargreaves Last updated
-
Why you should short this satellite broadband company
Tips With an ill-considered business plan, satellite broadband company AST SpaceMobile is doomed to failure, says Matthew Partridge. Here's how to short the stock.
By Dr Matthew Partridge Published
-
It’s time to sell this stock
Tips Digital Realty’s data-storage business model is moribund, consumed by the rise of cloud computing. Here's how you could short the shares, says Matthew Partridge.
By Dr Matthew Partridge Published
-
Netflix has plenty of life in it yet – here's how to trade the shares
Tips Netflix still has plenty of scope for growth, says Matthew Partridge, and the shares are reasonably priced. Here's how to play the Netflix share price.
By Dr Matthew Partridge Published
-
Trading: Dunelm will keep growing, here's how to play it
Tips Furniture retailer Dunelm surged during the pandemic, but its shares have since fallen back. But it is well placed to take more market share from rivals, says Matthew Partridge. Here, he explains how to play the Dunelm share price.
By Dr Matthew Partridge Published
-
Ashtead – a building equipment rental firm on solid foundations
Tips The prospects for Ashtead, the building-equipment rental firm, are auspicious. Matthew Partridge explains the best way to play the share price.
By Dr Matthew Partridge Published
-
A recruitment firm to bet on as the world gets back to work
Tips Recruitment consultant Hays has been volatile, but results are strong and trends encouraging. Matthew Partridge explains the best way to play the share price.
By Dr Matthew Partridge Published
-
What is next for interdealer broker TP Icap?
Analysis TP Icap has struggled in a declining market, but there’s still a role for its services. Bruce Packard explains what that is.
By Bruce Packard Published