Canada Goose Holdings Inc. (TSX:GOOS)(NYSE:GOOS) shares have been on a tear lately, up 24% in the last three trading sessions and up 48% since the company IPO’d on March 16 at $16 a share.
Investors who were fortunate enough to participate in the IPO are probably busy stuffing their goose-down-lined pockets with their recently made profits.
But for the rest of us who weren’t so lucky, is it too late to get in now that shares are trading at $22?
How did we get here?
Canada Goose has been around for over 60 years making dependable, warm outerwear to keep customers cozy in even the harshest winter conditions.
But it wasn’t until 2014 that the company officially opened headquarters in Toronto, and in doing so, it significantly increased its manufacturing capacity.
The company has also been making a push into new markets through its direct-to-consumer online sales channels along with two flagship stores opened in 2016 — one in New York City and the other in Toronto.
In the three years since expanding manufacturing capacity, the company has been able to grow sales at an impressive 38% annual clip; it has been able to nearly double net profit each year over that same three-year period.
At today’s share price of $22, Canada Goose has a trailing price-to-earnings multiple of over 90 times and a price-to-sales ratio of nearly eight times.
These ratios would be considered fairly rich by most investors’ standards, except that management at Canada Goose is projecting the current trend of above-average growth to extend beyond the next few years.
In the company’s Q4 press release, management updated its long-term financial outlook and issued guidance for fiscal 2018.
The company expects that the execution of its growth strategies will continue to drive increases in sales and profitability over the next three years, including annual revenue growth in the mid to high teens and growth in adjusted net income of about 20% per year.
For the current year (fiscal 2018), the company is expecting revenue growth also to be in the mid to high teens and is expecting earnings growth to approach 25% for the year.
Should you buy?
The question investors have to ask themselves is, how much of these expectations, which are, no doubt, very appealing, already baked in to the company’s share price?
If we go with management’s guidance of +20% net income growth over the next three years, this would work out to approximately $0.45 per share in fiscal 2020. Against today’s share price, that would equate to a forward P/E of about 48 times.
While the 48 times multiple is certainly more enticing than today’s 90 times measure, it would still be considered fairly expensive by most investors’ standards.
Not to mention, there is a lot that can potentially go wrong along the way.
Canada Goose’s jackets are not exactly a household necessity with price tags frequently nearing the $1,000 mark. This means that if there were an unexpected shock to the economy, during which wages were reduced or workers lost their jobs, there would likely be a direct impact on Canada Goose’s sales, throwing the company’s long-term projections off the mark.
While the company has been around since the 1960s, its latest push to become a household name is foreign territory for many of those running the business, and coming with that are a whole new set of challenges, besides just designing world-class outerwear.
For investors searching for the kind of stocks that offer growth rates expected to outpace that of the broader market, Canada Goose may just fit the bill.
But for those investors who are perhaps a bit more discerning as to the value they receive today when buying shares in a company, I suggest they may find themselves better suited to look elsewhere.
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Fool contributor Jason Phillips has no position in any stocks mentioned.