After a 68% crash, is this beaten-down UK share now in deep value territory?

Harvey Jones thought he was clever buying this UK share every time it crashed, but unfortunately it kept on falling. Should he buy more now?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

My self-invested personal pension (SIPP) has had a good year but one UK share is spoiling the fun and I’m wondering what to do about it.

The stock in question is FTSE 100 luxury fashion house Burberry Group (LSE: BRBY), which has completely lost its way. The board issued almost more profit warnings than new collections in recent years. Its brand messaging has been shot to pieces, the CEO kicked out and it’s now staring a first-half operating loss in the face.

Should you invest £1,000 in Burberry Group Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Burberry Group Plc made the list?

See the 6 stocks

FTSE 100’s worst

I have a long-standing and largely successful strategy of buying established blue-chips like Burberry when they’ve run into trouble. The aim is to pick them up at a lower valuation and with a higher yield, then sit tight and wait for them to recover.

I bought Burberry shares on 15 May, 30 May and again and on 3 July. Obviously, it’s not gone well. I’m down 36.31% today. Over 12 months, the shares are down 68.2%.

Created with Highcharts 11.4.3Burberry Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

I can console myself with the fact that the yield had shot past 8%, but the dividend has just been axed. That felt like the final insult (although I suspect it isn’t). I’ve got this one badly wrong so what do I do?

If I buy more today, I can pick up Burberry shares at a 14-year low. The price-to-sales ratio has collapsed, as this chart shows.


Chart by TradingView

The share price has fallen faster than revenues. That suggests it’s undervalued but there’s a catch. Sales haven’t stopped falling yet.

Burberry has been hit hard by financial troubles in China and it’s not the only one. French fashion behemoth LVMH has crashed 20.4% over the last year, but that’s nothing compared to Burberry’s beating.

No dividend either

Burberry’s Q1 sales fell 23% in Asia Pacific, with mainland China down 21% and South Korea faring worse at 26%. Yet there’s a danger of overdoing the Asia connection. Sales in the Americas crashed 23%.

The company is heading back to basics, by pushing its trench coats and scarves this autumn. I’m hoping its financial troubles won’t bleed into its brand image, but they might.

Burberry’s gross margins have inevitably taken a beating too. Worryingly, this is a long-term trend. Let’s see what the chart says.


Chart by TradingView

New CEO Joshua Schulman (the fourth in a decade) has a tough job. The only positive is that investor expectations are as beaten up as the share price. So if the cost-of-living crisis continues to ease, and sales pick up, the share price could show signs of life.

There’s deep value here. The price to tangible book value ratio, which measures a company’s market value relative to its hard assets, has collapsed along with everything else.


Chart by TradingView

The problem is that we can’t rule out further shocks. Turning around a disaster like this takes time. I won’t sell my (shrinking) stake but I’m reluctant to buy more right now. As I’ve learned to my cost, when a stock has a bad run, it can always get worse.

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Investing Articles

Up 30% in weeks, does the BAE Systems share price still offer value?

The BAE Systems share price has been on a tear over the past couple of months. This writer sees limited…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Hunting for shares to buy as the market trembles? Remember this!

After a choppy week in global stock markets, our writer goes back to basics in his hunt for bargain shares…

Read more »

Investing Articles

3 simple principles to help build wealth in an ISA

As a new tax year opens up new ISA allowances for many investors, our writer shares a trio of things…

Read more »

Investing Articles

US trade tariffs: what they could mean for UK shares like Ashtead, Compass Group, and Experian

US trade tariffs continue to rock global markets, and the UK is no exception. Our writer considers how a new…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Dividend Shares

The Trump slump has smashed these FTSE 100 shares!

After a rough week for US and UK shares, investors have been shaken. But now these FTSE 100 stocks have…

Read more »

Investing Articles

£10,000 invested in Rolls-Royce shares 5 years ago is now worth…

Rolls-Royce shares have been on fire since April 2020. Part of this is the result of pandemic restrictions lifting, but…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

£10,000 invested in Tesla stock at its peak in 2024 is now worth…

Over the last few months, Tesla stock has lost nearly half its value. Here, Edward Sheldon explores a few takeaways…

Read more »

Investing Articles

Is the S&P 500 heading for an epic stock market crash?

Our writer shares his thoughts on a very crazy time for the S&P 500 and the wider stock market. How…

Read more »