Canada Goose Stock Will Take Flight Soon Enough


Editor’s note: This column is part of our Best Stocks for 2019 contest

Back in Mid-December, I made my pick for InvestorPlace’s Best Stocks for 2019 contest. I was going with Canada Goose (NYSE:GOOS), the Canadian outdoor wear company whose parkas have taken the world by storm delivering a 39% return for owners of GOOS stock in 2018.

As we head into the second quarter of 2019, I’m tasked with looking at what’s happened to GOOS stock in the past quarter, and where it’s headed in the second quarter and beyond.   

The company itself continues to do well heading into 2019’s second quarter. GOOS stock was doing fine through the end of February, trading above $57, putting my pick solidly in third place in InvestorPlace’s 2019 stock picking contest.

But oh, what a difference a month can make.

Down 18% since March 1, I’ve moved from solidly in contention, to seventh place with a 10% return, well below Matt McCall’s blistering hot selection: Charlotte’s Web Holdings (OTCMKTS:CWBHF), which is up 81% over the same period.

Sure, I could whine about the fact cannabis stocks are in a league of their own — ETFMG Alternative Harvest ETF (NYSEARCA:MJ) is up 48% year to date through March 22 — but that would neglect the fact I too could have picked a cannabis stock.

Well played, Matt. Well played.

So, I’m just going to have to keep the faith that Canada Goose stock can take flight in the second quarter. The big question is will it?

Here’s Why I Like GOOS Stock’s Chances

In late January, Wells Fargo (NYSE:WFC) Senior Analyst Ike Boruchow downgraded GOOS stock from “Outperform” to “Market Perform” suggesting that the risk/reward had gotten too high.

At the time, GOOS was trading at $46, approximately where it trades today. Boruchow dropped his 12-month target price from CAD$80 to CAD$68, a 15% cut in its future share price.

“Our revised view on the stock is multi-faceted — driven by changes in perception to the branded space, valuation and to a lesser extent engagement,” Boruchow wrote in January.

“While we remain confident on the trajectory of the GOOS brand and the fundamental story that has developed since their IPO in 2017, we feel the risk/reward today is not as compelling as it once was.”

The analyst wasn’t suggesting that Canada Goose’s potential wasn’t real, just that the company’s stock price was too high, at this stage in the company’s maturing process.

I would argue that Canada Goose’s three-legged stool for growth I referred to in my initial article picking its stock is still very much alive despite the fact it trades for 63x cash flow.

“Canada Goose is building a three-legged stool comprised of wholesale, brick and mortar, and online revenues that will thrive not only in the winter, the best time to wear one of its parkas, but summer too,” I wrote December 17.

The business that exists in five years won’t look anything like what it looks like today because it will have built a balanced three-legged stool where online and brick-and-mortar become a more significant part of its overall business.

The reality is that investors are willing to pay more for successful omnichannel retail.

As Canada Goose continues to evolve and change in 2019 and beyond, investors will become more comfortable paying up for quality.

For now, long-term GOOS shareholders can only grin and bear it. Your patience will be rewarded.

Here’s Why I Don’t

I have a problem with the company’s use of coyote fur. It’s a reason that I don’t and won’t own the stock despite believing that CEO Dani Reiss is building a terrific business.

The arguments for and against Canada Goose using coyote fur are plentiful. Too many to list here. What’s more worrisome than the cases themselves is the reality that the fur is unnecessary for keeping customers’ heads warm and the amount of down used in the jackets is overkill thanks to global warming.

According to recent data Axios reported in November, the earth has been warmer than average for 406 consecutive months. Put another way, no one under the age of 32 has ever experienced a cooler-than-average month anywhere in the world.

Eventually, Canada Goose jackets are going to be unnecessary even for the most trendy because they’ll be too darn hot. Not in my lifetime, mind you.

Canada Goose is considered a one- or two-season business. If it can’t figure out how to sell stuff in July, ultimately, its growth does have a ceiling.

However, none of this is going to affect Canada Goose stock in 2019.

For now, it just needs to continue reporting strong quarterly earnings. The Q4 results are due out in mid-June.

The Bottom Line on GOOS Stock  

Canada Goose revised its 2019 outlook in February when it announced strong Q3 2019 earnings.

In terms of revenues, it expects top-line sales growth in the mid-to-high thirties on a percentage basis, up from its November estimate of 30% growth. On the bottom line, it now expects earnings growth in the mid-to-high forties, up from 40%.

The company’s stock might face some valuation headwinds, but the company itself continues to deliver on its gameplan for growth.

Ultimately, that’s going to push GOOS stock higher.  

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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