To say Burberry (LSE: BRBY) shares have been hot in 2021 would be no exaggeration. By market close on Monday, the FTSE 100 fashion giant’s share price had gained more than 25% since the start of the year. That’s more than twice the 9.5% managed by the index itself.
But if the wheels haven’t come off, at least one of them looks wobbly. On Monday, Burberry shares slumped by 8.7%, on the news that chief executive Marco Gobbetti has quit after five years in the job. Gobbetti will, apparently, move to Italy at the end of the year. The company says it is to be closer to his family, and has not revealed what his new job will be.
As I write on Tuesday, Burberry has picked up a percent or so. It’s still ahead of the FTSE 100 in 2021 too. And Burberry shareholders have enjoyed a pretty good return in recent years. So I don’t see any major disaster unfolding.
Burberry did crash hard in the early days of the 2020 stock market crash. But a strong 12-month gain since last summer, of 35%, has brought the shares back to around their pre-pandemic level. And over the past five years, we’re looking at a share price rise of 78%. During that same period, the Footsie managed just 7.5%.
So is this a buying opportunity? Well, given the long-term share price performance, Monday’s fall is really not a big deal to me. The obvious buying opportunity was back in the first couple of months of last year’s crash. But back then, almost every stock in the FTSE 100 was a buy. Still, looking over the past couple of years, Burberry could look cheap.
A volatile few years
The share price, though it’s been a bull run, has still not regained its January 2020 levels. Or its July 2019 high. Oh, and it’s still lower than in August 2018. And we’ve had takeover speculation too, so there must be a chance that could prove a winner for today’s investors.
I’ve generally liked Burberry over the years, but a few things give me reason for caution right now. One is that its share price is volatile. Well, not just the share price, but the sentiment driving it. And that sentiment might be cooling again. Only last week, HSBC downgraded its stance to Hold, suggesting that the share price is already high enough to cover the positives.
Then there’s the valuation itself. Based on the latest forecasts, Burberry shares are trading on a forward price-to-earnings ratio of around 25. That’s well ahead of the long-term FTSE 100 average. Growth shares often do command high valuations, though.
Better FTSE 100 options?
Forecasts indicate earnings growth of approximately 14% this year. But how much of that is actually just recovery? And how much is cyclical? If that 14% represented a steady long-term potential set to be repeated year after year, I’d fully support a strong valuation. And I’d very likely buy at today’s price.
But right now, I’m torn. I do envisage long-term growth. But I also see the shares as maybe a bit toppy now. Even with that, I might still be tempted, except that I see better FTSE 100 bargains out there at the moment. I’ll wait and see.
