Firms like Burberry (LSE:BRBY) have a protracted and proud historical past. First established in 1856, it has been listed on the inventory trade since 2001. But over the previous 12 months, the FTSE 100 inventory is down 67%. It at the moment trades at ranges not seen since April 2010.

I’ve stayed away up to now, however am making an attempt to evaluate how low the inventory may go.

Not feeling the love

A part of the explanation why I believe it has additional to fall is the the divergence between the inventory and the broader financial system. What I imply by that is that Burberry is a customer-facing vogue model. So when persons are doing properly and feeling optimistic in regards to the financial system, they may probably spend extra at locations like Burberry.

Knowledge out final week confirmed that UK retail gross sales rose by 0.5% month on month. The patron confidence figures for July hit the very best stage since September 2021. So it’s clear to me that sentiment is sort of good proper now. But the Burberry share price continues to be falling.

The assist of the sturdy knowledge ought to act to assist the inventory to rise. The truth that it’s not serving to tells me that there have to be a variety of traders promoting proper now. It’s not an amazing indicator for the approaching months, probably suggesting there’s additional room to fall.

Anticipating a drop in earnings

When making an attempt to evaluate particularly how low the inventory may go, it’s difficult. Primarily based on the final annual report, the price-to-earnings (P/E) ratio is 9.48. Nevertheless, I anticipate the up to date earnings per share to be a lot worse.

Primarily based on my tough calculations, I’d anticipate the earnings per share to drop from 74.10p to round 48p. This elements in an anticipated 35% fall in income, with this filtering down to the underside line. I’d additionally anticipate the P/E ratio to remain round 10. So utilizing these figures, that will put the share price down to 480p.

After this level, I’d anticipate price saving measures and different promotional exercise to kick in, enabling the funds to regular into 2025 and past. If realised, this could act to assist the inventory from materially falling decrease.

The view from the opposite facet

My view might be invalidated as the remainder of the 12 months pans out. For instance, I anticipate the brand new CEO, Joshua Schulman, to set out some aggressive technique modifications and new plans. Despite the fact that this would possibly take a while to be applied, these concepts is likely to be warmly embraced by traders, inflicting the share price to spike.

Additional, if rates of interest all over the world are minimize sooner than we predict within the coming 12 months, it may assist to gas extra optimism available in the market. This would possibly finally filter by way of to the inventory price.

Even with these legitimate elements, I really feel the Burberry share price has additional to fall. Due to this fact, I’m staying away for the second.