Over the long term, the stock market has generated an average annual return of around 10%. At that rate, it would take more than seven years for your money to double in value. Doubling your money in 12 months, therefore, is a rare occurrence. Rare doesn’t mean impossible, however. But to find stocks that can rise 100% in under a year takes some extra research and prudent risk-taking.
In 2017, one of Canada’s most iconic fashion brands hit the public markets at roughly $20 per share. By 2018, the stock was priced above $90 per share — good for a 350% gain. Recent pessimism has cut the share price in half from its 2018 highs, but the underlying data suggests a big surge is about to happen again.
High-growth companies like this hardly ever go on sale, but when they do, they create the perfect conditions for a quick double.
Domestic domination
The stock I’m talking about, of course, is Canada Goose Holdings (TSX:GOOS)(NYSE:GOOS). This company simply dominates the luxury retail market in Canada. At last count, more than 5% of all Canadians owned a Canada Goose jacket. That type of market penetration is rarely found anywhere in the world. Only the likes of Nike can rival this success, yet the comparison isn’t quite appropriate, considering Nike sells $100 sneakers, while Canada Goose peddles $1,000 jackets.
Even more impressive, more than 80% of those that already own a Canada Goose product plan on buying another for their next winter jacket purchase. This level of brand loyalty is one of the most valuable things a brand can have. In retail, dozens of brands go in and out of style every year. Only those with intense buyer loyalty survive the cycle. Canada Goose has been meeting its customer’s high expectations since 1957. Its long history and loyalty data suggest it’ll be around for decades to come.
Global opportunity
After a recent correction, Canada Goose stock is a screaming bargain. In 2017 and 2018, shares were trading above 100 times earnings. That’s a huge premium versus the market overall, but as the stock continued moving higher, investors decided it was worth the price. The latest pullback, however, has priced shares at just 35 times forward earnings.
This is a crazy valuation, and if Canada Goose can re-energize its growth trajectory, a huge move upward would be very possible. Even if shares doubled, they’d still trade at a discount to the company’s historical valuation.
What could reinvigorate investor optimism? Two words: global growth.
In 2019, Canada Goose posted $831 million in revenue, generating adjusted EPS of $1.36. Over the next three years, management expects revenue to increase by more than 20% annually, while adjusted EPS should grow by more than 25% annually. Those are impressive multi-year growth numbers.
These growth rates will only be possible by tapping international markets. “Europe and Asia both represent large long-term opportunities as represented by luxury apparel spend, at much early stages of development,” company executives recently noted. “With demand in major international markets well established, DTC expansion is central to unlocking the full global potential of the brand.”
Today, two-thirds of Canada Goose sales are in North America, yet this region only represents one-third of the global luxury market. Already, the company’s international sales segment is growing by more than 50% per year. With a long runway of growth ahead of it, the stock market doesn’t seem to be pricing in this lucrative opportunity.
As the trade war between China (the largest luxury market in the world) and the U.S. cools down, expect investors to jump back into stocks that are tapping the rapidly growing Asia-Pacific region. All the pieces are in place for a big run in 2020, including a rock-bottom valuation, consistently high growth rates, and a narrative transition from domestic to international growth.
