I’m a Burberry (LON:BRBY) shareholder and have held the stock for a number of years.

My decision to invest was based on the traditional resilience of the luxury market, and my view that Burberry is a valuable and durable heritage brand. I paid a weighted average of just over £15 per share for my personal holding and believed -- at the time -- that this represented an attractive long-term entry point.

I think that's potentially still be true. But it’s fair to say my view on the company has been tested by developments this year. The luxury market has slowed and Burberry has suffered additional self-inflicted problems.

The share price is down 45% year-to-date and the dividend has been suspended after a second profit warning in seven months.

This Stock Pitch is an effort to clarify my thinking on Burberry. Are the shares as cheap as they might seem right now?

Summary

Pros:

  • Luxury heritage brand with 168 years of history

  • Shares trading at a post-2010 low could be very cheap if business recovers

  • Burberry could attract bid interest at this level

Cons:

  • The company has struggled to elevate its offering and may have to sacrifice margin to undo the damage

  • China’s slowing economy means consumer spending has weakened; buyers’ tastes may be changing

  • Burberry shares are only cheap if profits recover

Profile

About the stock

Burberry is a luxury British fashion brand. It’s listed in the Consumer Cyclicals sector, within the Specialty Retailers industry group.

The company floated on the London market in 2002 and is currently a member of the FTSE 100, with a market cap of £2.6bn and a recent share price of 747p.

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As the smallest company in the index at present, I imagine it’s quite likely Burberry will be demoted to the FTSE 250 in the next index reshuffle.

The StockRanks show high quality and value scores but an extremely low momentum score.

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A high QV score fits the classic profile of a contrarian stock and this is reflected in the company’s current StockRank Style rating:

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I am instinctively attracted to the…

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