Burberry (LON:BRBY): premium brand, premium share price

Burberry (LON:BRBY) reported a decrease in revenues of 3% to £1.22bn but net income jumped up 42% to £131.9M for the six months ended 29 September 2018.

The group's shares are pricey by conventional standards, trading on a rolling P/E ratio of 23.8 and a rolling PEG ratio of 6.30, but the group's admirable quality metrics (for example, a five-year average ROCE of 25.9%) arguably justify a premium valuation.

Has Burberry's (LON:BRBY) share price outperformed?

Burberry is a balanced, large cap in the Apparel & Accessories Retailers industry and it has a market cap of £7,958m.

Over the past year, the Burberry share price has risen by 13.7%, which sounds pretty good.

But it’s important to put this in context and look at the market trend. After all, in a rising market where prices are up across the board, that gain might not be as remarkable as it seems.

As it turns out, the FTSE All-Share index is up slightly over the past year, after a tough second half of 2018. Its shares have a 1-year relative strength of 9.19%.

Read on to find out what the evidence shows may happen next...

Why relative strength really matters

While there are no certainties about which way a stock will move next, research shows that price trends often persist.

Studies by Narasimhan Jegadeesh and Sheridan Titman, who are leading experts on momentum, show that stocks with the strongest price strength tend to keep up the pace for anywhere up to one year because 1) people hesitate to bid up stocks that have already gone up, and 2) investors chasing rising prices attract others who make the same trade and add to share price momentum.

What does this mean for potential investors?

Burberry is currently among the stocks with the strongest six-month and one-year relative price strength in the market. But momentum on its own is no guarantee of future returns. 

To get a better idea about whether this momentum will continue, it's worth doing some investigation yourself. Indeed, we've identified some areas of concern with Burberry that you can find out about here.