Will Canada Goose Reach $60 in 2020?

Many things will have to go right for Canada Goose Holdings Inc (TSX:GOOS)(NYSE:GOOS) this year for the stock to turn things around.

| More on:
question marks written reminders tickets

Image source: Getty Images

Canada Goose Holdings Inc (TSX:GOOS)(NYSE:GOOS) is coming off a disappointing 2019 where the stock fell 21% despite a very strong year for the markets.

With its growth rate slowing down, investors have become concerned with Canada Goose’s valuation. Before the stock went over a cliff in May as a result of a disappointing outlook, Canada Goose stock had strong support at the $60 level.

If it can return to that price point, that would mean a return of more than 25% for investors who buy the stock today.

Why the stock could rally

The biggest hurdle for Canada Goose stock in 2020 is that with a market cap of more than $5 billion, it’s a bit of an expensive valuation for a stock that sells over $1,000 parkas.

Currently, the stock is trading at a price-to-earnings (P/E) ratio of 36, but with analyst expectations still looking strong, its forward P/E is expected to drop to 22. Its PEG ratio of 1.1 suggests that over the long term, the stock could be a good value buy as well.

PEG considers P/E as well as growth, and Canada Goose could be a bit of a bargain as investors typically look for PEG to be one or lower, and the stock is only marginally above that threshold.

As long as things don’t get any worse for Canada Goose and its growth rate doesn’t continue to taper off, there’s definitely room for the stock to bounce back in 2020.

Why the stock could falter

One area where I do have a concern, however, is with the company opening more storefronts and effectively increasing its risk by being more of a conventional retail stock.

One of the company’s strengths was its high margins and strong direct-to-consumer segment that enabled Canada Goose to enjoy sales all over the world without needing to manage inventory in all those places.

Having more physical locations will add to overhead and increase costs for the company, potentially eroding some of its profitability along the way.

While it’ll help grow sales as well, I’m not sure it’ll be worth it in the long run, especially given how many retail giants have struggled. If economic conditions worsen, the demand for expensive winter wear just may not be as strong as it has been in the past.

The other risk is the company’s exposure to China. Not only are tensions high involving Canada, but the instability in Hong Kong also presents a potential problem for Canada Goose, with the company already acknowledging that it has impacted its business. These geopolitical issues will continue to weigh on the stock in 2020.

Is the stock a buy?

A good quarter can certainly lift Canada Goose’s stock back up to $60, but there are too many uncertainties surrounding the stock today that make it too risky of a buy.

Although it has seen some support at around $45 over the past several months, if Canada Goose doesn’t have some strong results in 2020, it could potentially sink even further down.

Investors may be better off waiting for now, as there are many other growth stocks out there that could provide good returns without being nearly as risky as Canada Goose.

 

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. The Motley Fool owns shares of and recommends Canada Goose Holdings.

More on Investing

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

tsx today
Stock Market

TSX Today: Why Record-Breaking Rally Could Extend on Thursday, March 28

The main TSX index closed above the 22,000 level for the first time yesterday and remains on track to post…

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

clock time
Tech Stocks

Long-Term Investing: 3 Top Canadian Stocks You Can Buy for Under $20 a Share

These three under-$20 stocks offer excellent buying opportunities for long-term investors.

Read more »

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »