2.7 Million Reasons to Bet on Canada Goose (TSX:GOOS) Stock

Canada Goose (TSX:GOOS)(NYSE:GOOS) has shed much of its market value over the past year. However, now the stock seems oversold.

| More on:
Canadian Dollars

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

While the global stock market has had a bad month, Canada Goose (TSX:GOOS)(NYSE:GOOS) has had a bad year. The stock has been steadily sliding for the past 15 months. Since November, 2018, the company has shed 67.5% of its value. It’s fair to say the company’s problems may have started long before the pandemic. 

Nevertheless, I believe the stock is now low enough to warrant attention. Contrarian investors looking for a distressed asset with a long-term growth trajectory should probably add Canada Goose to their watch list.

Here’s why:

A robust balance sheet

There’s no doubt that Canada Goose faces a demand shock in the short-term. Stores are shut across the world and people don’t buy luxury coats during the spring anyway. Investors see a substantial downturn in sales for 2020. However, this pessimistic outlook seems to have been priced into the stock. 

Goose’s stock is trading at 20 times trailing earnings. If earnings are cut in half this year, the forward price-to-earnings ratio is 40, which isn’t bad for a company that was growing sales at 40% annually before the crisis. 

Canada Goose also has enough dry powder to survive the crisis. Debt is only 72% of the value of equity. The company had $72 million in cash and cash equivalents on its books and a hefty profit margin going into this crisis. I believe it will survive the crisis. 

However, investors may still be concerned about consumer appetite for Goose’s notably expensive products after the lock down. The pandemic’s impact on the economy is unprecedented, so predicting demand for luxury goods isn’t easy. But a positive signal seems to have emerged last week.   

2.7 million green flags

French luxury giant Hermès reopened its stores in Guangzhou, China last week. On the first day, sales surged to a record-breaking 19 million renminbi, or US$2.7 million. It seems Chinese consumers splurged on the brand’s home and clothing products. Specifically, Birkin handbags were hot sellers.

China’s lockdown has ended before the rest of the world, giving investors a glimpse into the future of the global economy. It appears that the shutdown has created pent-up demand for luxury goods — good news for Canada Goose. 

Pent-up demand in China alone is good news. Chinese consumers account for roughly one-third of global luxury sales now. Goose opened its flagship store in Beijing last year, marking its entry into this critical market.

Much of the company’s future growth plans hinge on demand from wealthy Chinese consumers. If they’re buying Birkin bags now, they might be buying Goose jackets in the winter this year. 

This trend could play out on a global scale. Wealthy shoppers could unleash pent-up demand on luxury goods that helps sustain brands like Canada Goose. Meanwhile, over-leveraged competitors will be driven out of business.

Foolish takeaway

Canada Goose has shed much of its market value over the past year. However, now the stock seems oversold. The company will survive this downturn and there seems to be pent-up demand for luxury goods on the other end of this shutdown. 

Contrarian investors should probably consider this a bargain opportunity. 

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 VRaisinghani has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Canada Goose Holdings.

More on Investing

Man holding magnifying glass over a document

3 Heavily Shorted TSX Stocks to Watch This Summer

Canadians should monitor heavily shorted TSX stocks like Canada Goose Holdings Inc. (TSX:GOOS)(NYSE:GOOS) in this bear market.

Read more »

Airport and plane

3 TSX Stocks Set to Take Off With Summer Travel

Canadians should direct their attention to the travel industry and snatch up TSX stocks like Air Canada (TSX:AC) and others…

Read more »


Young Investors: 3 Canadian Stocks You Can Trust as Inflation Rises

Inflation has soared to new heights, which should spur young investors to snatch up Canadian stocks like Empire Company Ltd.…

Read more »

analyze data

2 Tech Stocks That Benefit From the Decline of Crypto

Crypto's bear market creates opportunities for traditional rivals like Lightspeed (TSX:LSPD)(NYSE:LSPD).

Read more »

Growing plant shoots on coins

Why This Canadian Growth Stock Could Double Next Thursday

This growth stock is set to soar if market recovery continues and what analysts expect from the company continues.

Read more »

Glass piggy bank

Market Correction: Boost Your Retirement Fund With These 2 Stocks

The correction in top TSX stocks presents a solid opportunity for investors with long-term financial goals to buy shares of…

Read more »

Happy family father of mother and child daughter launch a kite on nature at sunset
Dividend Stocks

Parents: Here’s Every Credit and Benefit You Can Claim From the CRA

Parents have it hard already, so make sure the CRA is doing everything for you by dishing out payments you're…

Read more »

edit Colleagues chat over ketchup chips
Dividend Stocks

3 Canadian Dividend Stocks to Buy and Hold for Life

These dividend-paying stocks have solid earnings base to support their payouts for decades.

Read more »