Sometimes, companies have to deal with the perfect storm of events. Luxury fashion brand Burberry (LSE: BRBY) is currently facing this prospect. The retailer has had to deal with the fallout from the political unrest in Hong Kong — one of its biggest markets. Now it’s also having to deal with the outbreak of the coronavirus across Asia.
These pressure have sent the company’s stock price down 30% since mid-January.
According to recent updates from the business, 24 of Burberry’s 64 stores in Mainland China were closed with remaining stores operating with reduced hours and seeing significant declines in footfall.
Management issued this update at the beginning of February. It’s unclear if trading has deteriorated since. However, while the outbreak will undoubtedly mean reduced sales and profits in the near term, from a long-term perspective, Burberry’s outlook remains bright.
The company’s biggest asset is its brand. This isn’t going to disappear overnight, even if authorities cannot control the virus.
What’s more, Burberry has a strong balance sheet. Unlike many other businesses, which have borrowed heavily and, as a result, could face ruin if the outbreak leads to a sustained drop in profitability, Burberry reported a net cash balance of £837m at the end of fiscal 2019.
This healthy cash balance should ensure the group remains solvent throughout the crisis. It also gives management flexibility with regards to the company’s dividend.
With enough cash on the balance sheet for at least four years of dividends, it seems as if the distribution is safe for the time being. As such, now could be a great time to snap up shares in the British retail champion.
The stock’s dividend yield has hit 2.6%, and it’s trading at a 2021 price-to-earnings ratio of 18. That’s 10% below the long-term average of 20.
Shares in global advertising giant WPP (LSE: WPP) lost nearly a fifth of their value in a single day last week.
The company published its results for 2019, which came in below expectations on the day when concerns about the virus outbreak reached fever pitch.
Investors didn’t wait around to see if the organisation had any plans to return to growth. They rushed for the exits as fast as possible. Following this decline, the shares are off 33% so far this year.
WPP’s results were disappointing, but they weren’t terrible. Reported revenue increased by 1.4%, and like-for-like revenue was flat. Reported profit before tax declined by 21.9%.
However, a couple of exceptional one-off profits recorded in the same period a year ago, and not repeated, were responsible for the bulk of the decline.
Therefore, WPP’s headline revenue growth provides a better gauge of the company’s health. The group’s management has also launched a £150m share repurchase plan, which suggests they’re incredibly confident in its outlook.
As a result, now could be the time to take advantage of recent market declines and snap up a share of this global advertising giant.
It’s currently dealing at a P/E of 8.2, which suggests a wide margin of safety. The stock also offers a dividend yield of 8.1%. These numbers indicate that if the company returns to growth, the share price could jump significantly.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Burberry. 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.