Should You Buy Canada Goose Holdings Inc. Ahead of Earnings?

A harsh winter could mean a strong Q4 for Canada Goose Holdings Inc (TSX:GOOS) (NYSE:GOOS).

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Canada Goose Holdings Inc. (TSX:GOOS)(NYSE:GOOS) has seen its share price more than double in the past year, and year-to-date it is up 30%. The stock shows no signs of slowing down, and with earnings around the corner, it could be a good opportunity for investors to load up on the stock.

In its most recent earnings report, Canada Goose’s top line rose by 27% and profits were up 62% year-over-year. The company has done well over recent years, with sales more than doubling since 2015; Canada Goose has averaged a respectable 6.8% profit margin during that period. The challenge for the company is how to stay out of the red during its off-peak quarters. In Q4 of last year, Canada Goose posted a loss of $23 million as even its operations recorded a loss.

With weaker quarters coming up, investors could see the hype surrounding the stock start to slow down. From June to November of last year, the stock didn’t see much growth, and it wasn’t until its peak winter seasons that the share price started to gain momentum.

Reasons why Canada Goose could be a great buy before earnings

The one thing the company has continued to do is surprise. Although I didn’t see much of a market for a company that sells expensive winter clothing, Canada Goose has proven to be very successful, and done a great job of finding ways to grow. If the company produces another strong result, then the share price could get even stronger.

This past winter was a bit harsh in certain parts of the country, which may have extended the peak season for Canada Goose long enough that the company may see a stronger quarter than it did a year ago. With weather playing a big factor in the company’s sales, it could be a good predictor of Canada Goose’s performance.

Reasons why investors may want to avoid the stock

Canada Goose is an expensive stock, and investors who want to buy today will be paying a big premium. The share price is currently valued at more than 85 times its earnings, nearly 40 times its book value, and more than 10 times its sales. Any one of those multiples would send value investors running. The share price might not have a lot of upside either, as it’s trading within 3% of its 52-week high.

The stock looks overdue for a correction, as we’ve see investors start to turn away from expensive stocks this year, and it may only be a matter of time before Canada Goose gets the cold shoulder. Despite being able to post a profit, only once in the past four quarters has Canada Goose been able to generate positive free cash flow.

Bottom line

Canada Goose is a great growth stock that has been able to do very well since listing on the TSX. However, that growth will become more challenging now that its sales are higher. And with the company’s off-season coming up, investors may want to wait for a (big) dip in price before buying.

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 David Jagielski has no position in any of the stocks mentioned.

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