UK markets open in 6 hours 3 minutes

When Should You Buy Burberry Group plc (LON:BRBY)?

Simply Wall St

Burberry Group plc (LON:BRBY), which is in the luxury business, and is based in United Kingdom, received a lot of attention from a substantial price increase on the LSE over the last few months. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Today I will analyse the most recent data on Burberry Group’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Burberry Group

Is Burberry Group still cheap?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 15.26x is currently trading slightly below its industry peers’ ratio of 15.89x, which means if you buy Burberry Group today, you’d be paying a reasonable price for it. And if you believe that Burberry Group should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, it seems like Burberry Group’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

What does the future of Burberry Group look like?

LSE:BRBY Past and Future Earnings April 7th 2020

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Though in the case of Burberry Group, it is expected to deliver a negative earnings growth of -9.4%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? BRBY seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on BRBY, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on BRBY for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on BRBY should the price fluctuate below the industry PE ratio.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Burberry Group. You can find everything you need to know about Burberry Group in the latest infographic research report. If you are no longer interested in Burberry Group, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.