Regardless of being sorely tempted, I depend my fortunate stars I didn’t purchase Burberry (LSE: BRBY) shares over the previous yr. However a current improvement means I now discover myself taking a recent take a look at the inventory.

Horrible 2024

The previous FTSE 100-listed firm’s woes are well-known. Excessive inflation and a cost-of-living disaster have hammered gross sales of luxurious items, significantly in important markets corresponding to China. This has led to 2 revenue warnings and the corporate parting methods with former CEO Jonathan Akeroyd. On high of this, dividends have been suspended, pushing the share price down even additional. A multi-year low of 555p was set in September.

Since then, we’ve seen a revival of types. Rate of interest cuts within the UK and the US, to not point out a stimulus programme in China, are prone to have performed a job within the 20%-odd achieve seen within the final month.

However one thing else has now bought the market excited.

Bid goal

On Monday (4 November) it was reported that Italian peer Moncler may bid for the UK firm.

The preliminary hearsay seems to return from the commerce journal Miss Tweed. Apparently, luxurious large LVMH — proprietor of Louis Vuitton and Dior, and investor in Moncler — is in search of the deal to go forward.

Unsurprisingly, Burberry’s share price jumped on the day whereas Moncler remained tight-lipped on whether or not it supposed to make a proposal.

No positive factor

At this level, it’s value remembering that many firms deemed takeover targets by no means obtain bids. Even when these arrive, they is likely to be rejected. A board may consider it might probably get a greater price for shareholders. Or it would assume a powerful restoration in buying and selling is imminent and that everybody ought to sit tight.

For instance, property portal Rightmove slammed its door within the face of a possible suitor (4 instances) a month or so in the past. And this rejection has seemingly impacted investor sentiment since.

Apparently, Burberry shares have been down over 6% at one level this morning (5 November). Does that imply the hearsay will come to nothing? Presumably. And this price motion demonstrates why I attempt to keep away from shopping for shares solely as a result of somebody, someplace has advised a deal is imminent.

As at all times, I purchase with the intention of holding any shares for the long run.

Right here’s what I’m doing

Eradicating the rumours of an imminent takeover, I do assume Burberry stands an honest likelihood of recovering ultimately. Whether or not it might probably ever recapture earlier highs is one other factor solely.

Personally, I’d prefer to see the corporate pivot away from extreme discounting, which devalues the model. Its markdowns could at present be a direct impact of its transfer additional upmarket throughout a luxurious downturn, with high-priced product not promoting and ending up in outlet shops. So it could must rethink pricing too with the intention to drive extra full-price gross sales.

However the issue is that outlet shops contribute an terrible lot to gross sales and eventual earnings. As such, I don’t envy administration in the case of making a call.

With no simple resolution, I feel there could possibly be extra volatility forward. Certainly, this can be why Burberry stays a favorite amongst short-sellers.

So, I’ll proceed monitoring developments for now. If I do purchase, it is going to be with the intention of constructing a place slowly.