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It has been a very hard year for Burberry (LSE: BRBY). He FTSE 250 The company is down 51% over the past year. It recently hit its lowest level in more than a decade. However, numerous media outlets have reported on the possibility of the company being purchased. This has caused a short-term rise in the stock. This is what I think will happen next.
What we know so far
Let's first review what we know so far. In recent days, several reports have emerged according to which Bernard Arnault, head of the powerful LVMH Moët Hennessy Louis Vuitton empire, is interested in buying Burberry. This could come indirectly through outerwear firm Moncler, which has close ties to LVMH.
Buyers appear to be circling due to the sharp drop in Burberry's valuation, triggered by the share price falling in 2024. Investors have stayed away from the stock following poor earnings reports, a turnaround in chief executive and the recent demotion to the FTSE 250. This has reduced the market capitalization to £2.92bn. By contrast, LVMH has a market capitalization of £255 billion.
In the same way that I can look at a stock and buy it because I think it is undervalued, large corporations can do the same. Companies are often bought because the other company believes it is a good value at the time.
weighing it
I should note that Burberry has not received anything formal in the form of an offer (as far as I know). The recent rise in stock price is simply due to speculators making assumptions. If a deal is struck, it will likely be at a premium to the current share price. So for people who buy now and make the right decision, it's a potential way to make quick profits.
There's nothing wrong with this, but it's not really something I'm doing. If there's nothing there, I think Burberry's share price could fall even further. Although I think there will come a time when you will want to buy stocks, it is not now.
I think it will take time for the business to recover. Cost-cutting measures announced earlier this summer should help. Sales in the key Asia Pacific region should recover next year thanks to China's stimulus efforts and regional growth. But these are things that take time to filter down to the bottom line of profitability. Therefore, I want to keep my powder dry for now.
Investment strategy
If Burberry is bought before the end of the year, I'll take my hat off to those who bought the shares in anticipation. But as a long-term investor, it just doesn't suit my style. So, I'll stay away from this one for now, but I'll keep an eye out for reports.
