Market expectations of an improvement in like for like sales boosted by a positive currency tailwind following the plunge in sterling post Brexit has pushed Burberry shares 18% higher in the last month.
The shares have benefited from a slew of recent positive broker recommendations and as we head into the Sales Release next week we look to OTAS for any indicators which may provide some colour on the risk landscape from here…
OTAS Core Observations:-
- Strong sector relative performance in the last week(+8%) aided by a recent positive technical signals.
- Despite recent positive broker sentiment the change in analyst expectations has been muted with just +1.74% average revisions to 12m forward numbers in the last month.
- This contrasts significantly from market expectations, where the shares have been pushed +18% over the same period as evidenced by the Divergence stamp. Investors may see this as a possible travel & arrive scenario.
- The positive price action has left the shares looking expensive in valuation terms relative to industry peers.
- Burberrys’ sector relative implied volatility is 27% higher compared to normal, evidence the options market is predicting a higher degree of share price risk(+/-17%) for the shares over the next 3 months. Investment managers employing a low vol portfolio strategy should note this abnormality.
Interestingly, similarly observed high volatility levels have coincided with distinct price behaviour recently.
- The Put Ratio of traded options is back at year lows indicating little in the way of downside protection currently being sought. This could be a sign of market confidence or misguided complacency by equity investors.
- Short Interest is within the normal expected range but has increased by around 50% in the last month.
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