Only a few short weeks ago, shares of Canadian gem Canada Goose Holdings Inc. (TSX:GOOS)(NYSE:GOOS) hit the market in an Initial Public Offering (IPO) that was valued close to $2 billion. While investors who were lucky enough to secure an allocation prior to the IPO at $17 per share have had the opportunity to sell out and reap a profit in a very short period of time, the investment may not be for everyone.
Looking at the stock in only the past few weeks, shares opened close to the $23 mark on the first day and have started to find a support level around the $20-21 range. Unfortunately, with very little trading history, it will take at least two months to establish a 50-day simple moving average (SMA) and even longer to establish a 200-day SMA. The more days that are included in the SMA, the stronger an indicator it will be.
In the case of Canada Goose, investors have for the first time been able to put the company under the microscope and evaluate the financial statements prior to the IPO. The company is still the infancy stages as a public company. Although there have yet to be any earnings announcements from it as a publicly traded company, investors still have high hopes for their investments.
Canada Goose does not currently pay a dividend; shares of Canada Goose offer investor nothing more than the potential for capital appreciation. Buyers should, however, realize the company will be extended a honeymoon time to get the house in order. Conference calls and earnings reports are now an important quarterly event for the company. While expectations are high, it is important for investors to be fully aware that the investments they’ve made may not pay off for a very long time.
By not paying a dividend, the company will only be able to return a profit to investors by having the share price appreciate in value. With high expectations already in place, the time to exceed expectations may take a little longer than some want. Compounding this is that the company is not a “one-skew” type of company where the investment is hit or miss. As a retailer of clothing that is needed in Canada, investors will probably give the company more time to deliver positive news.
With a honeymoon period that could last for several months yet, investors need to make the decision as to where they want to invest their capital. The following question has never been more important: “What am I giving (paying) and what am I getting?”
In the case of Canada Goose, investors are paying close to $21 per share for earnings which have a reasonably high chance of being there sometime down the road. When those earnings will be enough to meet expectations remains to be seen.
