Fabulous FTSE Flush: Zendaya confirms Burberry Bottom

The market does the thing it does: take shit too far

A stock bleeds out for over a year to a contentious price then flushes sharply lower, silencing all bulls. Soros discussed this dynamic — prevailing bias — likening it to physical momentum: in short, we need a catalyst to change the trend. Ironically, this catalyst is sometimes a capitulatory flush itself resetting expectations.

Leading us to another micropitch: Burberry. Investors have become too negative after forced selling and utter failure of Burberry’s latest head designer. I have a large position currently.

Dividend suspension and FTSE flush

“The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” - John Templeton

Besides general pessimism itself, we know that dividend suspensions create forced sellers. We know that major index deletions create forced sellers.

So yeah. Failing to investigate the company after these enormous technical developments is borderline negligence for a global investor.

Balance Sheet

Like many retail stocks, Burberry’s balance sheet does not screen as well as it should due to $1.5bb in capital leases. Although it’s hard to believe that investors still don’t understand that leases aren’t financial debt, I think what is generally happening here is that such companies simply don’t make it through as many screens as they used to into the consideration pool in the first place.

Fact is, Burberry has almost zero net financial debt. Despite substantially reducing its share count, Burberry’s balance sheet is still strong.

Profitability

FY 2024 was a train-wreck. We now trade at 10.6x FY 2024 GAAP earnings.

FY 2023 went pretty well. We now trade at 6.2x FY 2023 GAAP earnings.

Burberry has a healthy history of buybacks as well as dividends. If we can stabilize somewhere in-between FY 2023 and FY 2024 results it should be worth at least a 10x multiple.

Burberry is too cheap.

Prevailing Bias Flip

What’s going to turn around not only operating results, but sentiment?

The new designer sucked and no one liked his weird shit. So now he’s making it more normal.

Burberry is a lindy brand and that’s what customers wanted. They brought in some guy in 2022 and he put out truly horrid shit. His new shit is way better. Take my word for it.

Zendaya factor

Zendaya is one of the hottest stars around. Since she wore Burberry’s latest look out on the weekend of September 22nd, the stock has gone up nearly 30%.

They should make her the official brand ambassador.

I’ve now provided you with all the information that I, personally, needed to make a risk decision. I hope you’ve enjoyed this micropitch.