Up 15% in 2 days but I think this oversold UK stock is still in deep bargain territory

Harvey Jones is thrilled to see this bombed-out UK stock explode into life
over the last couple of days. Should he buy it before it climbs higher or keep his powder dry?

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UK stock Burberry Group (LSE: BRBY) is by far the worst performer in my entire portfolio of 25 shares.

I only bought the luxury goods brand on 15 May, roughly four months after its January profit warning, but what I hoped was a bargain turned out to be a bomb. I’ve averaged down twice since, but still found myself sitting on a 44% loss by Tuesday.

As if that wasn’t bad enough, the 6%-plus yield I was hoping to receive as compensation for my troubles won’t be coming through. On 15 July, the board axed the dividend and fired CEO Jonathan Akeroyd for good measure.

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This FTSE share has lost its cool

I suppose it could be worse. Measured over 12 months, Burberry shares are down a brutal 65%, the worst performer on the FTSE 100 in that time. Except it’s not on the FTSE 100 anymore, but the FTSE 250. It’s fall from grace looks a little overdone, but there you go.

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

Burberry shares have blown up in my face, but what’s this? Suddenly they’ve exploded back into life.

Yesterday, they jumped 8.71%. This morning, they’re up another 6.18% and still climbing. So that’s 14.89% in just two days. I’m still sitting on a total loss of more than 30%, though, but these are early days. Is there more to come?

As far as dividends are concerned, the answer is no. Some stock websites are still showing Burberry with a trailing yield of 8.96%, but dream on. We won’t be getting that, I’m afraid.

As for growth? Well that depends.

The Burberry resurgence isn’t thanks to the efforts of new CEO Joshua Schulman, formerly of Michael Kors and Coach. It’s down to Chinese paramount leader Xi Jinping’s move to pump much-needed stimulus into the country’s ailing economy.

Burberry could boom but I’m wary

China is a huge source of demand for Western luxury goods, and the country’s consumer slowdown has been a real blow for Burberry. The US is another massive market, and there has been good news here, too, with the Fed cutting rates and fears of a hard economic landing fading.

I’ve noticed over the last few days that the worst performing stocks in my portfolio have done best out of this – I’m looking at you, Diageo, Glencore, and Ocado Group. Investors are in risk-on mode again, and looking for bargains.

The obvious risk is that the global recovery stumbles. There’s also a big underlying problem with the company itself, as it’s lost control of its brand and needs to get it back.

The 18 analysts tracking Burberry are gloomy, setting a median one-year price target of 673p, down another 5.09% from today’s 705p. There’s wild disparity, though, with pessimists forecasting the shares will plunge to 410p, while optimists are looking at 800p.

The board had promised a better second half, and I’m feeling more optimistic. So is Burberry in deep bargain territory? Trading at 8.96 times earnings, it looks like it.

So should I buy more? I’m wary of chasing this two-day rally. It could easily reverse and then I’ll be sitting on yet another short-term loss. Once things settle down, though, I’m in.

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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, Diageo Plc, Glencore Plc, and Ocado Group Plc. The Motley Fool UK has recommended Burberry Group Plc and Diageo 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.

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