Canada Goose (TSX:GOOS) Just Soared 29%: Should You Buy the Bounce?

Canada Goose Holdings Ltd. (TSX:GOOS)(NYSE:GOOS) is one of many TSX value stocks that are picking up significant momentum of late.

| More on:
Financial technology concept.

Image source: Getty Images

Don’t look now, but Canada Goose (TSX:GOOS)(NYSE:GOOS) stock is back, surging 29% in three trading sessions in a broader rotation back into the “at-risk” consumer discretionary names that were most vulnerable to COVID-19 shutdowns.

The maker of those luxury down-based parkas also noted its intention to lower its reliance on department stores and focus on its omnichannel direct-to-consumer (DTC) approach to bolster profit margins amid its recovery. Since Canada Goose stock peaked in late 2018, shares have imploded, losing over 77% in the March 2020 trough. Today, shares are still down 63% from all-time highs, as the firm looks to bounce back in conjunction with the Canadian economy.

Canada Goose: the case for getting back into “at-risk” stocks

While there’s no question that $1,100 parka makers are the last place you’d want to be invested in heading into one of the worst recessions in a dozen years, one has to remember that the stock market is forward-looking and that the damage that’s already been done to shares may already have factored more than just a recession.

Canada Goose stock essentially got cut in half, twice.

And while it could get cut in half again (and possibly again), if the coronavirus propels us into a depressionary environment, I think that at these depths, given the excess pessimism baked in, that the risk/reward tradeoff is favourable for contrarians with a long-term horizon and willing to go against the grain.

Manufacturers of luxury goods tend to take the brunt of the damage, as investors brace for an economic downturn. Canada Goose is a super-cyclical, but once the bull market comes roaring, shares are capable of multi-bagger numbers that are only capturable by contrarians willing to jump in at the worst possible time. The bull argument is that a majority, if not all, of the damage, has already been done to the Goose and that the reality of the situation may not be nearly as bleak as most investors expect.

If you’ve got a stock that’s priced with the expectation of a depression and the economic downturn ends up being more of a mild recession, you could have a name that could be subject to an upside correction.

Buying a super-cyclical at the depths could be a ticket to multi-bagger gains

As we witnessed over the past week, Canada Goose could fly high in a hurry. If you try to time it, there’s a good chance you’ll miss out on a majority of the gains. As the broader rotation out of defensives into at-risk names continues to be the theme, I think it’d be wise to consider nibbling into a position, assuming the rest of your portfolio is sufficiently defensive.

In a prior piece, I’d urged investors to consider adopting a COVID-19 “barbell” approach to portfolio construction so that they’ll benefit from a rotation back into at-risk names while maintaining a stable defensive foundation in case the insidious coronavirus sparks another wave of shutdowns, severely exacerbating the recession that we find ourselves in today.

Canada Goose is a risky bet, but it’s one with tremendous potential rewards, especially with shares trading at unprecedented depths.

Foolish takeaway

At the time of writing, GOOS trades at 6.4 times book and 13.18 times EV/EBITDA, which is a pretty low price to pay for a company that’s still in the early innings of its long-term growth story.

The company has a decent liquidity position and a stellar solvency position with a 0.76 quick ratio and a 2.3 current ratio. With a manageable amount of debt on the balance sheet, Canada Goose is going to survive the coronavirus typhoon, and it will come roaring back when the economy is reopened for business.

If you’ve got the time horizon and the stomach for volatility, GOOS is a prudent contrarian bet, especially if you’re of the belief that a second wave of coronavirus infections won’t be in the cards.

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

More on Stocks for Beginners

stock market
Stocks for Beginners

A Bull Market Is Eventually Coming: 1 Stock to Buy Now and Hold Forever

Investors may be uncomfortable in market downturns, but try to stay the course and focus on the long term to…

Read more »

Dividend Stocks

5 Steps to Making $500 in Monthly Passive Income in 2023

Generating monthly passive income isn't as hard as it sounds. Here are 5 steps to start making $500 every month.

Read more »

Various Canadian dollars in gray pants pocket
Stocks for Beginners

3 Passive-Income Ideas to Build Long-Term Wealth

Set up to earn multiple passive-income streams to complement your active income. Dividend stocks are an excellent way to start.

Read more »

woman data analyze
Stocks for Beginners

Got $1,000? 3 Places to Invest for March 2023

New investors should regularly save and invest according to their risk tolerance and financial goals. Here are three places to…

Read more »

Young adult woman walking up the stairs with sun sport background
Stocks for Beginners

Debt-Riddled Canadians: 4 Steps to Manage Your Finances and Grow Your Portfolio

There are so many Canadians drowning in debt. Follow these steps, and you could get out of it before you…

Read more »

Man holding magnifying glass over a document
Stocks for Beginners

TFSA Investors: Make Your Recession Watchlist Now!

These long-term stocks offer immense value for TFSA investors looking to create immense returns coming out of a recession.

Read more »

tsx today
Stocks for Beginners

TSX Today: What to Watch for in Stocks on Thursday, March 23

TSX stocks may remain volatile, as investors continue to assess how the high interest rate environment could affect the economy…

Read more »

A plant grows from coins.
Dividend Stocks

2 Young TSX Stocks You’ll Be Glad You Bought in 10 Years

Youth means nothing when you plan to hold strong companies long term. These two TSX stocks should therefore be first…

Read more »