Will Canada Goose Holdings Inc. Be a Long-Term Winner?

Canada Goose Holdings Inc. (TSX:GOOS)(NYSE:GOOS) is firing on all cylinders. Is it time to buy the stock on its pullback?

| More on:
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Canada Goose Holdings Inc. (TSX:GOOS)(NYSE:GOOS) is an interesting IPO that’s been steadily heading lower after its initial surge.  The company operates in the niche space of luxury winter clothing, which is quite cyclical and susceptible to the effects of seasonality.

The company has ambitious growth goals. Dani Reiss, the CEO of Canada Goose, believes the stock is worth the premium valuation since the company has been growing at a compound annual growth rate (CAGR) of 38.3% over the last three years.

The company is definitely not cheap, but if it can continue growing at this rate, the stock will soar, and early shareholders will be rewarded.

Mr. Reiss is extremely optimistic, but is it realistic that the company will be able to outperform going forward?

We could be in store for warmer winters over the long term because of the effects of global warming, and this will hurt sales. Sure, global warming is a long process, but it’s something to think about before you buy shares with the intention of holding them forever.

I’m not a huge fan of the conspicuous goods business. Sure, the company may be selling its $900 parkas like hot cakes now, but if there’s an economic downturn, the company will get hit hard because luxury winter coats will be the last thing on people’s minds.

The stock could take a considerable amount of time to recover from a market crash as well, so I’d recommend caution if you’re thinking about investing in an extremely cyclical stock such as Canada Goose for the long run.

Luxury winter clothing is a niche industry and you could make huge profits, but just make sure you eventually take profits off the table. In the event of a recession, you could lose your shirt and not get it back for a very long time.

Canada Goose is a great brand that will continue to strengthen over the next few years. I suspect that a large amount of cash flow will go back into initiatives to further strengthen the brand, because branding is incredibly important in the luxury retail space.

Canada Goose’s brand can be considered a small moat, but I would be cautious because there’s a chance that this moat could be eroded by competition if the management team at Canada Goose can’t stay on top of things.

The company has received backlash from PETA over the use of real coyote fur in its products. Many PETA members were protesting outside the New York Stock Exchange during Canada Goose’s IPO.

PETA revealed it bought shares of Canada Goose with the hopes that it could, as a shareholder, convince the management team to stop using the fur of real animals. I don’t think PETA is too big a risk for the company, as most morally conscious people are already avoiding the stock.

Canada Goose is firing on all cylinders, and there’s a ton of growth potential to be had, but there are also risks associated with an investment.

If you’re a believer in Mr. Reiss, and you think the brand will be around for many decades, then it might be a good time to pick up shares. Volatility will be ahead, so make sure you don’t make this stock a core holding.

Personally, I’m staying on the sidelines because the risks are too great for me, and there are too many unknowns right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any stocks mentioned.

More on Investing

A solar cell panel generates power in a country mountain landscape.
Top TSX Stocks

3 TSX Stocks You Can Hold for the Next 3 Decades

While the market faces significant headwinds, it's crucial to ensure that you can commit to the TSX stocks you're holding…

Read more »

energy oil gas
Dividend Stocks

2 High-Yield Energy Stocks to Buy as Recession Approaches

Energy stocks such as TC Energy and Canadian Natural Resources allow investors to generate income even in recessionary times.

Read more »

green power renewable energy
Dividend Stocks

3 Top Dividend Stocks to Drive Your Passive Income

These three high-yielding, safe dividend stocks could boost your passive income.

Read more »

Dial moving from 4G to 5G
Tech Stocks

TFSA Investors: 2 Canadian Stocks With Unbelievable Staying Power 

Amid economic uncertainty, investors look for stocks that can thrive in any crisis and grow long term. Here are two…

Read more »

protect, safe, trust
Dividend Stocks

TFSA Wealth: How to Earn $363 in Monthly Passive Income for Life

Canadian investors can harness the power of the TFSA to generate steady tax-free passive income for decades.

Read more »

Canadian Dollars
Dividend Stocks

TFSA Millionaire: How to Turn $40,000 Into $1.2 Million for Retirement

Here's how TFSA investors are using the power of compounding to buy top Canadian dividend stocks to build retirement wealth.

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Superb Income and Growth Stocks for Every Portfolio

The market is full of superb income and growth stocks, but not all belong in your portfolio. Here are three…

Read more »

stock market
Stocks for Beginners

Worried About Stagflation? 2 Canadian Stocks for All Market Cycles 

Stagflation delays economic recovery. You can keep your portfolio stagflation ready with these Canadian stocks that are suitable for all…

Read more »