Burberry has another thing to worry about; short-sellers are circling. The stock has been in a freefall since April last year as it underperformed peer companies like LVMH (EPA:LVMH), Hermes, and Kering (LON:0IIH). In all, it has crashed by 50% in this time and the situation could get worse.
Burberry short interest rises
There are signs that more short sellers are betting that the Burberry (LON:BRBY) share price has more downside to go. Data compiled by Research Tree shows that the company has now become one of the most shorted firms in London.
Its short interest stands at 6.38%, making it the fifth most shorted company after Petrofac (LON:PFC), Kingfisher (LON:KGF), Hargreaves Lansdown (LON:HRGV), and Future. Worse, short interest has risen by more than 3.1% this month, meaning that the situation is getting worse.
Some of the best investors have increased their short positions on Burberry. For example, Citadel Europe, owned by billionaire Ken Griffin, has a 0.98% short position on the company. Similarly, Marshall Wace has increased its short interest to 0.8% while Jefferies recently downgraded it.
There are reasons to worry about Burberry, as I wrote last week. The company has continued to see weak financial results in the past few months. Last week, it said that its retail revenue came in at 706 million pounds, down by 7% from its previous period.
There are signs that Burberry will not bounce back any soon. For one, China, its key market, is going through a period of turmoil as stocks plunge. The Hang Seng, China A50, and Shanghai Composite have all retreated to their multi-year lows.
This is notable because, weaker stock prices impact the upper quantile of people, leading to low confidence. Burberry targets people in this category, with its trench coats selling for over $3,500. On the positive side, the US is doing well, which could offset the slump in China.
Will Burberry recover?
I believe that Burberry is still a major brand in the luxury industry. I also expect it to recover at some time. However, the company will continue going through a turbulent period in the near term as short interest rises.
A likely solution for Burberry is to be acquired. Because of its strong brand recognition and its cheap stock price. Some French companies like LVMH, Kering, and even Hermes might consider adding Burberry in their portfolio.
Still, for now, no offer has been made for Burberry, so this is just speculation. As such, without a bid, there is a likelihood that the stock will continue retreating, with the next point to watch being at 930p, its lowest point in 2020.