Burberry (LSE: BRBY) is one name that caught my eye recently. The share price is down 50% in the last 12 months, but when taking a look at the fundamentals of the FTSE 100 company, this seems like an overreaction.
Being one of the few UK deluxe fashion brands, Burberry is instantly identifiable due to its high-quality craftsmanship and heritage status.
With interest rates set to fall this year, consumer spending on luxury brands should increase.
Could this be one luxury name to add to my portfolio? Let’s take a look.
The economics of the company are intact
Although Burberry Group’s share price has decreased over the past year, its earnings per share (EPS) has actually gotten better. It’s surprising that the share price has gone down so much despite the increase in this metric. 2023 adjusted annual EPS was 122.5p, versus the 2022 result of 94p.
Revenue and operating profit are also up year over year. Revenue increased 9.5% to £3,094m, and operating profit rose to £657m, up 21%.
When searching for companies to add to my portfolio, I also look at the company’s dividend per share. After all, there’s nothing nicer than receiving some passive income. Burberry’s dividend increased to 61p in 2023, up nearly 30% from 2022’s payout of 47p.
One final positive aspect of the company’s recent financials is the share buyback. Burberry repurchased £400m worth of shares last October, which gives me confidence as an investor. Why?
Firstly, when a company buys back its own shares, the supply of shares decreases, but the company’s value stays the same. This usually leads to an increase in the share price.
Secondly, since there are fewer shares in circulation, the EPS should increase. This means that shareholders will have a greater stake in the company’s profits.
Turning my attention to the company’s forward outlook, Burberry highlighted that the “space is expected to be broadly stable in FY24.” Investors like stability, and more stability means less risk to factor into the share price.
One concern
Asia is the largest consumer of luxury goods, making it one of the biggest risk factors for lavish lifestyle companies.
Kering, the French luxury goods giant, announced that sales of its most popular brand, Gucci, have dropped by about 20% during the first quarter of this year. This raises some concerns for Burberry, whose Asian markets account for 43% of revenue.
Although all luxury names dropped slightly from this news, the market reaction suggests that this concern may be limited to Kering specifically rather than a primary concern for all in the sector.
Worthy of a place in the portfolio?
With more stability coming to the high-end market, Burberry is likely to find a place in my portfolio (and potentially in my wardrobe if things go well!)
The share price is at the low end of the last 10-year range, and offers plenty of growth to tap into, in my opinion. Combine that with a 5.3% dividend yield, and Burberry is a company I like over the next few years.
The post Down 50% in the last year, does this FTSE 100 stock have any luxury left? appeared first on The Motley Fool UK.
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Jesse Williamson has no position in any of the shares mentioned. 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.
