Luxury fashion group Burberry Group (LSE: BRBY) has risen by 25% over the last year, as investors priced-in the benefits of a weaker pound and resurgent sales in China.
But the group's stock fell by more than 6% when markets opened on Wednesday, after it issued a rather mixed trading update. The good news was that retail sales rose by 19% to £1,268m during the second half of the year, thanks to growth in China and an "exceptional performance" in the UK.
The bad news was that most of these gains were the result of shifting exchange rates. Underlying retail sales rose by just 3% and underlying group revenue fell by 1% to £1,607m, thanks to a 13% slump in wholesale revenue.
In fairness, falling wholesale revenue was to be expected. Burberry is currently running down its stocks of beauty products in preparation for a shift to a new partnership with US group Coty, whose brands include Clairol and Marc Jacobs.
But the group's retail operations account for 80% of sales. If underlying growth is slowing, then profits could come under serious pressure as the pound continues to gain strength against the US dollar.
Despite this, I believe Burberry remains attractive from a financial perspective. The group had more than £500m of net cash at the end of September and has a trailing 12-month operating margin of 14%. Although the short-term outlook is uncertain, I suspect the longer-term picture will be more favourable. I'd hold for now.
I underestimated this engineer
I sold my shares of Fenner (LSE: FENR) just before Christmas, thinking that at 250p, a recovery was already priced-into the stock. I was wrong. Fenner's share price has since risen by another 35% to 337p.
The group delivered an impressive set of interim results today. Revenue rose by 11% to £307.4m during the six months to 28 February, while underlying operating profit was 60% higher at £24m.
The company said "market drivers in many of the group's businesses are starting to look more favourable" and highlighted a "clearly improving trend" in oil and gas. As a result, the board now expects full-year operating profit to be "above previous expectations". Management also expects to benefit from a lower tax rate in the current year.
I suspect there could be more to come from Fenner, but I think it's worth considering what might go wrong. Like Burberry, Fenner has benefityed hugely from the weaker pound. While the group's underlying operating profit rose by 60% during the first half, underlying growth excluding currency effects was just 27%.
Is it too late to buy Fenner?
Underlying earnings are expected to rise by 50% to 12.7p per share this year, and by a further 26% to 16p in 2017/18. This puts the stock on a forecast P/E of 25 for the current year, falling to a P/E of 20 next year.
Although the interim dividend was increased by 40% to 1.4p per share in today's results, the stock's forecast yield of 1% remains low. The shares seem fully priced to me, but they may well continue to outperform. I'd continue to hold, but wouldn't buy more.
Is this today's top growth buy?
Burberry and Fenner have delivered big gains for investors over the last year, but I now think there's better value elsewhere.
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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Burberry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.