In May I wrote about upmarket fashion group Burberry. I commented that I liked the stock, but would like to pay a little less for it. At the time, my buying rules prevented me from adding Burberry to the SIF Folio, as it didn’t satisfy all of my screening tests.
I’ve returned from two weeks off to find that Burberry has become cheaper since May. The stock now comes within a whisker of satisfying all of my buying rules. More on that shortly, but first here’s a chart showing the share price action so far this year.
It seems that Burberry has first excited and then disappointed the market:
I think it’s worth revisiting the major events that have driven the firm’s share price this year.
20 Jan 2021: In its Q3 update, Burberry warns that the “short-term outlook remains uncertain”. Sales in the final quarter of calendar 2020 fell by 5%.
12 March 2021: The company says trading has improved. The board now expects “revenue and adjusted operating profit to be ahead of consensus expectations”.
28 June 2021: CEO Marco Gobbetti says he will leave the business at the end of 2021, after less than five years. Burberry’s share price slumps, partly because investors are worried that chief designer Riccardo Tisci might follow Gobbetti out of the door.
16 July 2021: The company says it has made “an excellent start to the new fiscal year”. Like-for-like store sales are 90% higher than last year and 1% higher than pre-Covid levels (i.e. Mar-June 2019).
11 November 2021: Burberry reports half-year sales “back at pre COVID-19 levels” with adjusted operating profit ahead of the comparable pre-Covid figure. A new CEO, Versace boss Jonathan Akeroyd, has been appointed. The board is comfortable with consensus forecasts for the year ending 27 March 2022.
So far, so good. Burberry’s sales have recovered, the company has acted promptly to appoint an experienced new CEO, and Mr Tisci has not quit.
In my view, the outlook is broadly positive. However, the market doesn’t seem to share my optimism. Burberry’s share price has fallen by 10% since I covered the stock in May, leaving the shares on a rolling forecast P/E of 21. That compares to an equivalent figure of about 25x in May.
The current P/E is more in line with…
