Editor’s note: This column is part of our Best Stocks for 2019 contest. Will Ashworth’s pick for the contest is Canada Goose (NYSE:GOOS).

As the second quarter of the calendar year comes to a close, it’s time for me to look back on an excruciating three months for GOOS stock, which up until the end of May, had been one of the best stocks on the U.S. markets. 

I, along with nine other market experts, was asked at the end of 2018 to pick the best stocks to rule the markets in 2019.

My pick was Canada Goose, which got out to a reasonable start four months into the year, gaining 22.1% through April 30. And then the calendar turned to May and things slowly started to unwind culminating with a disappointing fourth-quarter report May 29 that missed analyst expectations.

In one day, $1.7 billion in market cap was erased, but more importantly, it put one of Canada’s best stocks in question. Since then, GOOS stock has risen slightly, providing long-time shareholders with some hope the worst is behind it. 

I believe Canada Goose’s business model is still intact. I also think that its stock can rally over the final six months of 2019. Here’s why.  

Canada Goose is Still Laying the Foundation 

When GOOS reported that its sales in the fourth quarter grew by 25%, its slowest rate of year-over-year quarterly growth in eight quarters, investors were shaken. 

How could a company with so much momentum deliver a measly 25% growth?

Well, in fairness, the fiscal fourth quarter (January through March) is a seasonally slow time of year. However, in Q4 2018, revenues grew by 48% year over year, excluding currency, almost double what Canada Goose delivered a year later. That’s a big difference. 

And to make matters worse, Canada Goose management lowered expectations for fiscal 2020, suggesting revenues would grow by at least 20% for the next three years, considerably less than the 42% average between 2017 and 2019. 

While it might seem like business is growing more slowly, it’s important to remember that Canada Goose is working off a much bigger number in 2020 than it did in 2017. A CAD $113 million sales increase from 2016 to 2017 is a growth rate of 39%. Off CAD $831 million  (2019), its growth rate would be 14%. 

Suddenly, a growth rate of at least 20% for the next three years gives investors a lot more perspective. 

At the bare minimum of growth, Canada Goose would hit CAD$1.4 billion in revenue. Based on its current multiple of 6.4 times sales, GOOS stock would have a market cap of $6.8 billion by the end of fiscal 2022 (March 31, 2022).  

That’s an annualized total return of 19%. 

The Future Potential for GOOS Stock

The 19% return mentioned above doesn’t take into account the company announcing any new growth initiatives, including acquisitions of apparel brands that aren’t nearly as focused on colder weather. 

It’s important to remember that CEO Dani Reiss is still laying the foundational pieces of this global brand. It’s only had a store in China since late December; less than one year’s results are hardly a large enough sample. With eight new stores opening — including Paris and Milan — by the time holiday sales get going in November, Canada Goose has plenty of ammunition to grow sales by more than 20% in fiscal 2020. 

Furthermore, Canada Goose’s online and brick-and-mortar stores only went over the 50%-mark in 2019 (51.9% to be specific). Its direct-to-consumer (DTC) business had gross margins of 74.4% in fiscal 2019, considerably higher than the 46.9% gross margin from its wholesale business. 

Even if revenues only grow in the low 20s over the next few years, the profits will be considerably higher than they are today. Stock prices generally follow earnings. 

As it continues to build the perfect three-legged stool of online, brick-and-mortar, and wholesale, its business will continue to grow into an all-season global brand valued by people from every corner of the world. 

Dani Reiss’ lowering of the growth estimates over the next three years was management’s way of managing expectations. It’s better to underpromise and overpromise, something Lululemon’s (NASDAQ:LULU) done very well over the years. 

The Bottom Line on GOOS Stock

Canada Goose, like all growth stocks, is moving through a transitional period, where it goes from the “It” brand to something more sustainable with the corporate infrastructure in place to meet the increased demand. 

Although it’s down 14% in 2019, I expect it to surprise on the upside in the second half, because the shock of lower revenue growth is already out in the open.

I say onward and upward for one of the best stocks currently down on its luck.

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