The Burberry (LSE: BRBY) share price has been through hell lately, but suddenly it is flying. what’s going on

Over the past month, the luxury goods maker has destroyed all stock in the FTSE 100skyrocketing by 28.61%. He destroyed almost every rival on FTSE 250also where he currently lives. Only the construction company Morgan Sindall did better, jumping 29.54%.

So are we looking at an oversold stock that has a deserved pullback? Or an old fashioned dead cat jump?

This FTSE 250 stock is off like a rocket!

Burberry imploded in January after its board issued a profit warning and cut full-year profit forecasts following a nightmare Christmas trading period.

We learned that one profit warning often follows another, and it duly arrived in May, when full-year profits fell 40% to £383m as sales slumped in Asia and the Americas. That’s when I took the opportunity to get Burberry shares at what I thought was a great price and has an astounding 6%+ yield to boot.

I bought the stock twice in May and averaged down in July as the slide continued, only to find myself with a 45% paper loss. I took solace in the yield until the board eliminated shareholder payouts along with its CEO.

At that point I stopped trying to catch the falling knife. A few days later the recovery began.

Burberry got its first lift when Beijing announced a new stimulus package. Hopes of a soft landing in the US also boosted the luxury goods market.

However, the recovery has not lifted all luxury stocks, the biggest of many, LVMHdecreased by 7.59% in the last month. Investors seem to have decided that Burberry has fallen too far. Some may be pinning their hopes on takeover talks. Personally, I never buy stocks for this reason.

Recovery will take time

Burberry shares are still down 54.35% over the past year, suggesting there’s still a price-cutting opportunity here. It is currently trading at a price-to-earnings ratio of 9.97, which shows good value, assuming we can trust the P/E after all that has happened.

Interestingly, the 17 analysts providing one-year price forecasts for the stock have set an average target of 643.6p. If correct, it would suggest a further downside of 18.06% from here. It could easily happen.

Burberry still needs to sort out its brand positioning. Its attempts to target ultra-high-net-worth consumers have failed, leaving it exposed to the damage mass-market popularity can do to its image. Say Burberry and some instantly think of checkered baseball caps, unfairly or not.

Shares rose 6.34% on Friday in a fresh burst of optimism. That reduced my personal loss to just 27.16%. I’m excited about the recovery, but I’ve already had enough exposure and I’m not going to go watch it.

If I wasn’t a Burberry owner, I’d wear one today long term view. But he still thinks it faces a bunch of challenges and expects further share price volatility before it finds its feet, which I think it will eventually.