The Burberry (LSE:BRBY) share price has been sliding for much of the past three months. Yet the continuation of this move lower has meant it hit fresh 52-week lows at 1,520p earlier this week. The stock is now down 26% over the past year, which makes me wonder if it’s becoming an undervalued purchase.
Weaker demand hurting
A big factor in the share price fall in recent months has been softening customer demand. The half-year results (which runs through to the end of September) showed that revenue was relatively unchanged from the same period last year.
A reduction in the profit margin meant that reported operating profit dropped by 18%. The business commented that “the macroeconomic environment has become more challenging recently”.
This refers to the cost-of-living crisis in the UK. Yet Burberry is a global brand, and so the impact of the slowdown in the Chinese economy and higher interest rates around the world are also factors.
Investors were also likely concerned about the comment in the outlook. It said that “if the weaker demand continues, we are unlikely to achieve our previously stated revenue guidance for FY24”.
This sounds like management preparing people for the worst, in case it becomes a reality. I see this as the main risk to me buying the stock now. If demand does continue to slow and earnings fall, the share price could easily continue to dip.
Reputation speaks for itself
One reason why I would consider buying the stock is because Burberry has been a listed firm for decades. It has survived the crisis of 2008 and the pandemic of 2020 onwards. During both occasions, customer demand fell significantly for a period.
If I had bought the stock during these events (eg during March 2020) I’d currently be in profit. So it does show that buying on dips has historically been a good strategy. Of course, history doesn’t always get repeated! But my point here is that Burberry is a resilient stock that can weather any short-term storm.
A contributing factor to this is the global nature of the brand. Despite the overall muted results, the EMEIA region grew store sales by 10%. I imagine this was mostly driven by the Middle East. This shows how different regions can offset weakness in other areas.
The diverse product offering also helps. Even though some lines really underperformed, Outerwear sales jumped 21% in H1.
Making a call
I do believe in the brand, but also feel that weaker demand is likely to persist for a few more months. Therefore, I’m considering investing a small amount now and adding to this in chunks over the next six months. That should give me a blended average price, which will help if the stock does keep falling.
