When I’m really bullish on a stock, I tend to add it to my Self-Invested Personal Pension (SIPP) portfolio as well as my Stocks and Shares ISA.

Right now, I’m hunting for a UK stock that’s fallen on hard times. I want an established business that has a solid track record of profitability. Crucially, I want some sort of turnaround story — preferably involving new management — that could help the stock bounce back massively over the next few years.

Another Rolls-Royce would be nice!

FTSE 250 contender

At first glance, Burberry (LSE: BRBY) ticks a few boxes. The stock fell off a cliff two years ago, crashing 77% in less than 18 months.

Burberry lost its way by hiking prices, and generally going too fast, too soon during a global luxury market downturn. As sales slumped – especially in China – the firm dropped a couple of profit warnings, ousted its CEO, and axed the dividend.

It was relegated from the blue-chip index to the FTSE 250 last year, where it remains.

While the stock has already started to mount a comeback, by rising 75% in nine months, it remains 60% lower than in April 2023 when the rot set in. So it could have much further to run, at least in theory.

New CEO

Importantly for me, Burberry has newish leadership in the shape of CEO Joshua Schulman. He previously led Michael Kors and Coach, and is known for turning fashion brands around. The early signs are encouraging, as he’s focused on returning Burberry to its roots, including classic trench coats and scarves. 

The continued resilience of our outerwear and scarf categories reaffirms my belief that we have the most opportunity where we have the most authenticity. While we are…still in the early stages of our turnaround, I am more optimistic than ever that Burberry’s best days are ahead.

Joshua Schulman.

The right ingredients?

So we have an established company whose shares are still down significantly from just over two years ago. An experienced CEO is in, with a plan to turn things around.

What about profits? Well, in FY2025, which ended in March, the firm swung to a £66m pre-tax loss from a £383m profit the year before. To help save £100m by FY2027, management’s cutting the entire night shift from its Yorkshire raincoat factory, as well as jobs from head offices. 

Brokers see a swift return to profitability, with a net profit of £69m and £148m pencilled in for this financial year and next respectively. This puts the stock on a forward-looking price-to-earnings (P/E) ratio of 26 for FY2027. 

Is that a bargain? It might be, assuming earnings growth trends upwards. But I worry that Burberry might struggle to drive top-line growth. In FY2020, revenue was £2.6bn. In FY2027, it’s forecast to be £2.6bn. Resilient? Yes. Exciting? Not really.

There’s a risk that consumer spending stays weak for some time, especially in the aspirational luxury sector. I generally buy stocks with a minimum five-year view. While I think this stock could yet go higher, I have no inkling about where Burberry will be in 2030. I’m not buying for now.

JD Sports Fashion looks more appealing to me. It faces the same consumer spending risks as Burberry, but the forward P/E ratio is just 6!