Burberry share price gets undervalued after earnings. Is it a buy?


Crispus Nyaga

May 18, 2022

Burberry share price moved above the descending channel.

The company’s revenue grew by 10% year-on-year basis.

The management warned about the slowing Chinese market.

The Burberry (LON: BRBY) share price moved sideways after the company published its trading statement. The stock is trading at 1,584p, which is about 2.65% below the highest point this week. 

Burberry earnings

Burberry is the biggest luxury brand in the UK with a market cap of more than 6 billion pounds. The firm sells its products in the UK, US, and China among others. 

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In a statement on Wednesday, the company said that its revenue for the financial year that ended in April rose to £2.8 billion as its retail full-price comparable-store sales rose by 24%. In the previous year, the company’s revenue was £2.3 billion.

Meanwhile, its adjusted operating profit rose to £523 billion while its free cash flow declined to £340 million. At the same time, it decided to boost its dividend from 42.5 pence to 47 pence. 

The firm maintained its guidance of high single-digit revenue growth and margin expansion. However, it warned that the slowdown in China could lead to a substantial slowdown. In a statement, the new CEO said that:

“The company has made great progress over the last five years to elevate the brand, product, and customer experience into the luxury space. I look forward to setting out my plans for building on these strong foundations and accelerating growth at the interim results in November.”

Analysts believe that Burberry is a good investment thanks to its strong brand and the fact that luxury buyers tend to keep shopping even when inflation rises. Also, the company is seeing strong growth in China, the biggest luxury goods buyer in the market.

Further, the company is reasonably valued. The firm has a trailing price-to-earnings ratio of 12.46, which is lower than the broad market. A DCF valuation metric by Simply Wall Street estimates that the company is about 37.2% undervalued.

Burberry share price forecast

The four-hour chart shows that the BRBY share price has been in a strong bearish trend in the past few months. Along the way, the stock made a descending channel that is shown in black. Before the trading statement, the shares moved above this channel. It has moved above the 25-day and 50-day moving averages.

The money flow index (MFI) has moved close to the overbought level. Therefore, there is a likelihood that the stock will keep rising as bulls target the key resistance level at 1,700p.

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