Since last spring, I’ve been watching the plummeting Burberry (LSE: BRBY) share price through the gaps between my fingers.
My hands have been clasped to my face because I was bullish about the British luxury fashion brand owner last year and bought some of the shares. However, I was wrong – at least in the short term.
With the stock near 1,264p it’s down around 44% over the past 12 months.
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All investors make mistakes. I’ve heard it’s common to be wrong about carefully selected shares around 50% of the time. That’s why portfolio execution is so important.
It’s what we do next when a stock turns against us that counts. Fortunately for me, I choose to manage the risk in my portfolio by operating a mental stop-loss for losing positions. So I sold out when Burberry took about 7% of my invested money away.
However, being out of the stock now will not stop me going back in later when the time seems right for a longer-term hold. Such flexibility is one of the great advantages that private investors have compared to institutional money managers who invest millions.
Profit warning
Meanwhile, Burberry is down another 9% or so today, as I type on Friday (12 January). The damage this time is due to the release of a trading update containing a profit warning.
The directors said they are “confident” in the firm’s strategy to realise Burberry’s potential as the modern British luxury brand. An ambition to generate revenue of £4bn annually is still on the cards, which compares to around £3bn achieved last year.
However, there’s been a slowdown in luxury demand and adjusted operating profit for the current trading year to March will likely be below previous guidance.
It’s hard to see this news as anything other than grim. But we could be close to the bottom with regard to these short-term challenges. It’s even possible the slide in the share price has given investors an opportunity to pick up the stock at a keener valuation.
A juicy dividend yield
One indicator I’d be keen to focus on now is the dividend yield. There’s no sign of any imminent slashing. So Burberry has the potential to give its shareholders handy passive income while they wait for recovery in the business and the share price.
Looking ahead to the trading year to March 2025, the anticipated yield is around 4.7%. That level suggests the stock could be offering investors good value right now.
However, there are risks, of course, as with all stocks and businesses. If the firm’s troubles continue for an extended period, we could see further falls in the share price. After all, trends are known for their tendency to continue rather than to reverse.
Nevertheless, for me it’s a good time to become interested in Burberry again and to double-down with further and deeper research. I’d like to own the stock for the long haul and it’s near the top of my watchlist now.
