How High Can Canada Goose Holdings Inc. Fly?

Canada Goose Holdings Inc. (TSX:GOOS)(NYSE:GOOS) has been an intriguing company to follow since its IPO in March. Here are a few things long-term investors should be watching in the quarters to come.

| More on:

Of all the Canadian IPOs of late, Canada Goose Holdings Inc. (TSX:GOOS)(NYSE:GOOS) struck me as probably the most intriguing of the bunch. Canada Goose is an aspirational consumer goods brand with solid market penetration domestically and strong global potential outside Canada’s borders. I think it’s an interesting growth play moving forward, similar to that of Lululemon Athletica Inc. before the company’s successful global expansion into new markets, specifically the U.S.

Whether Canada Goose can, in fact, replicate some of the international success of Canadian retail darling Lululemon remains to be seen; however, the fundamentals of both businesses are quite similar, and many analysts have drawn the parallel between the two.

Interesting business model

I like businesses with strong brands and strong margins; in the retail or fashion space, I believe the most important thing is to be something to someone. Having an overly generalized customer base, as with Aritzia Inc., is likely to cause problems for investors long term; however, the customer base of Canada Goose is an affluent one, focused on buying Canada Goose products for the quality of the brand and the status that accompanies such a purchase. Why else would someone spend $1,000 on a parka? (The difference in the average ticket price from that of Aritzia is one of many fundamentals I like about Canada Goose’s business model).

Strong margins allow for rapid and sustainable growth among brands, and margins have actually been improving for Canada Goose over time. With a gross margin now above 51% (from 41% just a year earlier), and the operating margin creeping above 15% (from 12% a year earlier), it appears that the business is well positioned for an expansion into the U.S. market.

The company has a sustainable debt load with interest coverage of more than six times (which has improved over time), and positive free cash flow which can be reinvested in its expansion moving forward.

That said, Canada Goose is trading at a valuation which many consider to be rich with a forward price-to-earnings multiple of 51 and a price-to-book ratio of 36. This is a growth company; however, it appears that a significant percentage of the growth potential has already been priced into this stock. Therefore, investors concerned about the valuation of the business may want to wait for a more attractive entry point (should one present itself) over time.

Bottom line

Canada Goose is a growth stock with solid forward momentum and relatively solid results following its IPO in March. I will keep this company on my watch list moving forward, as it will be interesting to see how its growth plans play out in the near future.

Stay Foolish, my friends.

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 Chris MacDonald has no position in any stocks mentioned. The Motley Fool owns shares of Lululemon Athletica.

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »