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.
-
‘I installed a heat pump in my home – here are five things I’ve learnt’From the size and noise of a heat pump to how much it costs to run one, Ruth Emery reveals what she’s learnt after installing one in her home six months ago
-
3 ways to work out if a stock is good valueThe only thing you can really control in investing is the price you pay for an asset – but how can you tell if you’re getting a good deal when it comes to the price of a stock?
-
Why you should short this satellite broadband companyTips 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.
-
It’s time to sell this stockTips 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.
-
Netflix has plenty of life in it yet – here's how to trade the sharesTips 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.
-
Trading: Dunelm will keep growing, here's how to play itTips 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.
-
Ashtead – a building equipment rental firm on solid foundationsTips The prospects for Ashtead, the building-equipment rental firm, are auspicious. Matthew Partridge explains the best way to play the share price.
-
A recruitment firm to bet on as the world gets back to workTips Recruitment consultant Hays has been volatile, but results are strong and trends encouraging. Matthew Partridge explains the best way to play the share price.
-
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.
-
Why and how to short Coinbase sharesTips Coinbase, the only listed cryptocurrency exchange, will struggle to stay ahead of circling rivals. Matthew Partridge explains how to play it.
