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I am looking for the best FTSE 100 repurchase shares to be purchased next year. Again The Burberry Group (LSE:BRBY) is near the top of my list after its recent price collapse.
Should I buy it for my portfolio? Here is my opinion.
On the rack
I take Warren Buffett's advice that “never invest in a business you don't understand” very seriously. That is why I have never considered buying Burberry shares in my portfolio.
It could be my age, or because I don't understand fashion. Regardless, I don't know what makes their products better or worse than other luxury brands. I know it's famous for raincoats and their unique check pattern, but that's it.
However, the sharp decline in the share price this year has made me realize. At 601p per share, Burberry's share price fell by two out of three within the last 12 months.
Like I said, I'm not the guy to talk to for fashion tips. But I know what a company in trouble looks like. And the red lights are flashing here.
Burberry – which is due to lose its prestigious FTSE 100 listing next week – reported a 22% drop in sales in its latest financials covering April to June.
It is also facing big costs as it retools its stores, and suspends dividends to ease pressure on its balance sheet.
The problems run deep
Like other luxury brands, the company is suffering as affluent customers tighten their wallets due to the uncertain economic climate. Even this strong end of the retail market has suffered in this climate.
Words include LVMH, Kering again Hugo Boss they also reported disappointing sales, partly due to the weak Chinese market. But Burberry's problems seem to run much deeper than this.
The company seems to be suffering from an identity crisis. It changed strategy in the late 2010s to focus on the high-end segment of the fashion market.
But it is already throwing in the towel a bit on this idea. It's more focused now”rebalancing our product offering to include a wider everyday luxury offering and a more complete range across key categories,” said.
Burberry has had five CEOs in more than 10 years. It also had several creative directors at the time, although that is not expected in such a business. But I think the CEO's situation shows a company with no clear direction, and chaos with its product.
There is still a price
I'm not counting Burberry out, mind. Its latest CEO Joshua Schulman has a strong track record at heavyweight brands Michael Kors, Jimmy Choo and Coach. He could be just the man to turn the fortunes of the firm around.
However, it is too risky for me, and especially at the current prices.
Even after its share price fell this year, Burberry shares still hold high value. Its forward price-to-earnings (P/E) ratio is 28.1 times it is more than double the average of the FTSE 100 index.
Given the mountain the company has to climb, I don't think it would be wise to open a position at these levels. Such a rating could cause another drop in the price if news from the fashion company upsets investors again.
I think there are some very good recovery stocks available to buy right now.
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