Scanning FTSE100 in search of potential buying opportunities, I was interested Burberry (LSE:BRBY) shares.

It was definitely one of the weakest indices this year in the UK.

Let’s take a closer look at what happened and see if there is enough data to allow for a potential recovery.

Volatility hits strenuous

Burberry shares have fallen a massive 66% in 12 months from 2,180p at this time last year to 737p. In 2024 alone, they have fallen 47% from 1,416p at the turn of the year to current levels.

It’s not strenuous to identify the recent struggles of one of the world’s most recognizable fashion brands. Economic instability around the world has hurt many sectors and businesses, with luxury fashion and Burberry being hit strenuous.

Rising inflation, slowing growth in key markets such as China and falling spending have all weighed on the company’s business.

In its latest update, a first-quarter report released July 15, the company said store sales were down 21% compared with the same period last year. This comes after a slew of profit warnings ahead of the update. In fact, the company is on track to post an operating loss in the current half.

Recovery or further decline?

I am hopeful, but even Burberry shares are not that stimulating to me. However, the fact is that the strength of the brand, the broad reach and the potential for growth are stimulating.

The last point could be key to any recovery. With such a sturdy presence and history of success in Asia, one of the world’s richest regions, there is potential for a return to gains in the long term. This is linked to the growth of wealth in the area. However, past performance is never a guarantee of the future.

From a valuation perspective, I have to admit that Burberry’s current valuation is tempting, as the stock is trading at a price-to-earnings ratio of just nine. In comparison, the historical average is over 22, so the stock is in oversold territory.

What about returns? Well, when the share price falls, the dividend yield rises. However, Burberry recently announced that it is suspending its payments, at least for now. So that’s one less thing to add to the pros column as part of my investment case. However, since dividends are never guaranteed, this is not something I couldn’t have predicted after a turbulent period.

My verdict

I think that once volatility cools down, Burberry could get back on track, earnings could rise and the share price could rise again. That will happen if interest rates come down and China’s economic woes ease.

In my opinion, there is a long way to go. As a foolish investor interested in long-term investments, I would be lying if I said I was not tempted.

However, I think my money is better invested in what I currently believe are better options to facilitate me build wealth. But I will definitely be watching this situation and may reconsider my position soon.