If you were one of the many investors hopping onto the Canada Goose Holdings Inc (TSX: GOOS)(NYSE: GOOS) bandwagon recently, you may have been sent on a wild goose chase.
I mean granted, we’re all chasing extra money, and Canada Goose certainly had it for a while there. But lately the stock has been flying low, and it could get a lot worse before it gets better.
That’s why if you’re looking to invest in another retailer, I’ll be recommending another Canadian retail icon: Roots Corp (TSX: ROOT).
GOOS is on the loose
Canada Goose has had a lot of excitement surrounding it lately, and not all of it good. I mean let’s face it, the company has had an incredibly impressive run since its initial public offering (IPO) in 2017. Even in the horrifying year that was 2018 the company reached record-breaking heights. It started January 2018 off at $41 per share and reached an all-time high of $96 per share in November.
It looked like things would continue in much the same way, what with Canada Goose expanding into China. The country accounts for about a third of Canada Goose’s sales, and the opening of the Hong Kong and Beijing stores were seen as a success.
However, the ongoing trade wars are putting a damper on the stock. The stock has plummeted 30% from its November highs at the time of writing, and much of this can be accounted to China boycotting Canadian brands after Canada arrested the chief financial officer of Chinese tech company Huawei.
Things have only gotten worse for the company in the new year. Credit Suisse Group AG announced that they lost about $60 million after shares fell during China and Canada tensions. Then Wells Fargo cut its rating from “outperform” to “market perform” for the company. The bank attributed the cut not only to China, but also to a slowdown in the company’s popularity on the web.
All of this doesn’t bode well for the company. But let’s be clear: the tensions with China will eventually come to an end, and Canada Goose could soar to new heights again. Even though analysts believe the stock is overvalued, they still admit it could rise to over $100 a share by the end of the year. But I would wait until things cool off before going anywhere near this stock.
The ROOT of it
If it’s my dollars, I’m not going to trust a maybe. It can be really exciting to see a stock go from about $65 per share to $100, but it can also be just as exciting see smaller numbers make those leaps. And what if those numbers double, or even triple?
There’s potential there for the great Canadian retail icon, Roots Corp. The company has been on the stock market for the same length as Canada Goose, and is now past the exciting phase after its IPO when everything is fresh and rosy, with only a bright future ahead.
The stock has lost over half of its value since its IPO, much of that in the last six months. This was due to Roots announcing it would be delaying its expansion into the United States, and rightly so. Management just did not prepare itself to enter a country where the brand is basically unknown. Management made a lot of promises around its IPO that it just hasn’t been able to deliver on, but that doesn’t mean it won’t be able to do so down the pipeline.
As I said, when the news hit, shares went tumbling, and they’re now at bargain-basement prices. It’s just not a fair value for this stock at around $4 per share when analysts believe it should be sitting at around $6.50.
Again, just because the U.S. expansion is on hold doesn’t mean it won’t happen. The company creates a great product that millennials buy, which is why it could make it in America. So if Roots does expand in the next year, investors could see this stock rise to double or even triple today’s stock price. Analysts are projecting anywhere between $8 and $15.50 for 2019.
So while the stock price may not be as exciting as Canada Goose, buying into Roots could be cause for way more excitement — and for only a sixteenth the price of Canada Goose.
