Burberry Share Price Crash: Is This UK Stock Now in Deep Value Territory?
Burberry Share Price Crash: After a dramatic 68% drop, is this luxury fashion stock finally in deep value territory? Explore whether it’s worth buying more or holding on.
The Burberry share price crash has been nothing short of dramatic. If you’ve been following this FTSE 100 luxury fashion house, you know the company has faced a rough ride lately. With a staggering 68% drop over the past year, the stock has left many investors scratching their heads. The question now is whether this beaten-down share is finally in deep value territory.
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A Long History of Challenges
Burberry, known for its iconic trench coats and luxury fashion items, has hit a rough patch. The company has struggled with multiple profit warnings and leadership changes in recent years. The board’s inability to stabilize the brand has resulted in a first-half operating loss, adding to the growing list of problems.
I’ve followed a strategy of buying blue-chip stocks like Burberry when they’re in trouble, hoping to pick them up at a lower valuation and higher yield. I bought shares on 15 May, 30 May, and again on 3 July, but the results have been disappointing. Currently, I’m down 36.31% on this investment, and over the past year, Burberry’s share price has plummeted by 68.2%.
The Dividend Dilemma
One of the few bright spots was the high yield, which had exceeded 8%. However, the dividend has just been cut, making the situation even worse. The elimination of the dividend feels like a final blow to an already struggling investment. Despite this, the question remains: should I buy more shares now that the price is at a 14-year low?
Evaluating the Stock’s Value
When we talk about the Burberry share price crash, we also need to look at its valuation. The price-to-sales ratio has fallen significantly, indicating that the stock might be undervalued. However, there’s a catch: sales are still declining. The company has faced severe financial issues in China, and it’s not alone in this struggle. Even luxury giant LVMH has seen a 20.4% drop in its share price over the last year, though it hasn’t been hit as hard as Burberry.
A Global Perspective
Burberry’s recent Q1 sales report highlights the extent of its troubles. Sales in Asia Pacific fell by 23%, with mainland China down 21% and South Korea experiencing a 26% drop. But the woes don’t stop there. Sales in the Americas also fell by 23%. This global downturn suggests that the issues might be more widespread than just regional problems.
Returning to Basics
To counteract these financial troubles, Burberry is returning to its roots. The company plans to focus on its classic trench coats and scarves this autumn. This strategic pivot aims to leverage its strong brand heritage, hoping to regain some lost ground. Despite this effort, there’s a risk that the ongoing financial difficulties could further damage the brand’s image.
Gross Margins and Long-Term Trends
Another critical aspect to consider is Burberry’s gross margins. The company has faced long-term declines in this area, which is reflected in recent charts. The downward trend in gross margins is a concern, indicating that the financial difficulties might be deeper and more persistent than anticipated.
New Leadership and Future Outlook
Burberry has recently appointed Joshua Schulman as its new CEO, marking the fourth CEO change in a decade. Schulman’s challenge is significant. With investor expectations already at a low point, the potential for recovery might be slim if the cost-of-living crisis persists and sales do not improve.
Is There Deep Value Here?
Despite the current challenges, the Burberry share price crash has created a situation where some might see deep value. The price-to-tangible-book-value ratio, which measures a company’s market value relative to its hard assets, has also dropped significantly. However, the potential for further shocks cannot be ignored. Turning around a company facing such extensive difficulties takes time, and the risk of additional setbacks remains.
What Should You Do?
If you’re holding Burberry shares, it might be wise to hold onto them for now, given the current market conditions. Buying more shares at this low price could be tempting, especially if you believe in a potential recovery. However, be cautious, as investing in a stock with such a turbulent history can be risky. It’s essential to keep a close eye on the company’s progress and broader market trends before making any additional investments.
Conclusion
In summary, the Burberry share price crash has created a challenging environment for investors. While the stock’s current valuation might suggest a bargain, the ongoing decline in sales and the company’s financial troubles raise significant concerns. Patience and careful monitoring will be key as Burberry navigates its recovery path. Whether you decide to buy more shares or hold onto your existing stake, it’s crucial to stay informed and prepared for any further developments.
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Harvey Jones has positions in Burberry Group Plc. The Motley Fool UK has recommended Burberry Group Plc. 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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