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Market Crash 2020: Will Air Canada (TSX:AC) and Canada Goose (TSX:GOOS) Slide Further?

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Global equity markets have been pummelled this week. The Dow Jones Industrial Average experienced a record decline of 1,190 points yesterday, as coronavirus fears continue to escalate. The S&P 500 too fell 4.4% yesterday wiping off trillions of dollars in market value.

While the Dow Jones is trading 13% below record highs, the S&P 500 is down 12% in the last six trading sessions. Canadian equity markets, however, have not been impacted as severely. However, the S&P/TSX 60 Index is still down close to 7% in the last six trading sessions.

The dreaded coronavirus is set to impact global trade, the effects of which would be fully reflected in the next few months. Tech giants Microsoft and Apple have recently revised their outlook for 2020, and several other firms will follow suit.

The coronavirus might lead to stock market chaos, which will drive oil prices and global demand to multi-year lows. When China was affected by SARS (severe acute respiratory syndrome), consumer spending reduced drastically. Investors can expect the same to happen right now.

In case the equity market slides further, investors can expect stocks such as Canada Goose (TSX:GOOS)(NYSE:GOOS) and Air Canada (TSX:AC)(TSX:AC.B) to grossly underperform the broader market.

Air Canada

Shares of Air Canada are trading at $35.45, which is 33% below its 52-week high. Airline stocks might be severely impacted, as businesses and individuals are bound to re-evaluate travel plans.

The coronavirus has now spread to several countries, including the United States. Air Canada has already halted flights in and out of China and might have to extend this to other Asian countries. Air Canada expects the grounding of the 737 Max and the travel suspension to impact EBITDA negatively by $200 million in the first quarter of 2020.

The pullback has meant that Air Canada is trading at an attractive valuation. The stock has a price-to-sales ratio of 0.49 and an enterprise value-to-revenue ratio of 0.66. Its enterprise value-to-EBITDA multiple is 4.56, and the stock has an estimated five-year PEG ratio of just 0.19.

Air Canada stock is trading at a forward price-to-earnings multiple of 6.3, which might seem like an absolute bargain. However, there is a good chance that Air Canada will revise its sales and earnings forecast lower once it gauges the impact of the coronavirus.

Canada Goose

Shares of Canada Goose are trading at $36.58, which is 52% below its 52-week high. Canada Goose also has high exposure to China’s markets. The luxury retail brand expects the situation in China and other Asian markets, like South Korea, to have a negative impact on sales.

However, Canada Goose believes this to be a near-term headwind and is confident about the company’s strong fundamentals.

During the recent earnings call, CEO Dani Reiss stated, “People are staying home and avoiding shopping for their own health and safety in China and abroad. So, we are seeing impact in our stores and on Tmall in China and also in stores located in major international shopping destinations in Europe and North America due to extensive flight cancellations and travel restrictions.”

China is Canada Goose’s largest growth market, and the stock is bound to trade lower over the next few months. This pullback also provides investors with an opportunity to buy the stock at attractive valuations.

Canada Goose stock is trading at a forward price-to-earnings multiple of 20.6. It has a price-to-sales ratio of 4.1, which is reasonable considering estimated revenue growth of 14.4% in fiscal 2020 and 22% in 2021.

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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.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Apple. The Motley Fool owns shares of and recommends Apple, Canada Goose Holdings, and Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

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