Canada Goose Holdings: Highly Overvalued Even After A Significant Price Drop

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Canada Goose Holdings (NYSE:GOOS) has been connected a gross maturation trajectory since its IPO. A caller property merchandise revealed its maturation and class description plans, on pinch its five-year financial maturation targets. I americium optimistic that GOOS has nan imaginable to turn successful nan agelong term. However, its existent setbacks are what interest me.

Goose's net person taken a deed owed to nan COVID-19 restrictions successful China. Moreover, nan institution mightiness beryllium negatively impacted by an economical downturn, specified arsenic nan existent one. While this is nan lawsuit pinch immoderate equity stock, GOOS could beryllium moreover much susceptible owed to its precocious pricing. That's because consumers thin to walk little connected high-end manner products successful specified conditions. Its one-year full return has taken a important hit, falling by 32%. Currently, GOOS's income dangle connected conscionable nan wintertime play and a constricted merchandise line. Until I spot immoderate merchandise category description and maturation successful nan adjacent future, I stay skeptical astir investing successful GOOS. Therefore, I complaint it a clasp for now.

About Canada Goose Holdings

Canada Goose is simply a luxury clothing institution headquartered successful Toronto, Canada. It has stores located successful North America, Europe, and Asia. This much than half-decade-old institution specializes successful luxury outerwear, parkas, and accessories. Its products are designed chiefly to withstand utmost wintertime temperatures while providing style to its customers. The institution sells its products done a assortment of unit channels, including its ain stores, section stores, its online website, and online retailers. Furthermore, nan institution is soon readying to grow its products successful categories specified arsenic luggage, eyewear, and location decor.

Recent Corporate Performance and News

GOOS went nationalist connected nan NYSE successful 2017, and since past its gross has accrued significantly. However, owed to nan marketplace downturn and COVID-19 restrictions successful Mainland China, Canada Goose Holdings incurred an estimated gross nonaccomplishment of CAD60 million (USD45 million). As a result, nan gross for nan 3rd 4th ended connected Jan. 1, 2023, decreased by 1.6%. GOOS generates 78% of its gross from direct-to-consumer channels.

The patient has faced serious backlash complete nan years owed to its usage of coyote fur and goose down successful its outerwear products. Animal authorities activists and defense groups contend that nan fur was obtained utilizing sadistic trapping techniques. Despite specified disapproval Canada Goose persisted successful utilizing coyote fur successful its products, proclaiming nan material's applicable advantages, for illustration warmth and durability, arsenic good arsenic nan truth that it's a byproduct of nan nutrient business. The institution was besides accused of obtaining feathers from geese that were force-fed and unrecorded plucked. Eventually, successful 2020, Canada Goose stated that it would nary longer bargain caller fur, but alternatively usage reclaimed fur.

The brand, nevertheless, seems to stay celebrated owed to its luxury appeal. While nan pricing of its products ($1,000-plus for parkas and outerwear) remains a taxable of debate, a consciousness of style and indulgence still remains attached to its marque name.

Strengths

Although GOOS's financial estimates successful nan Q3 2023 net study were amiss, I judge its way toward world description tin beryllium considered positive. Its forward-looking EBITDA maturation is expected to beryllium 14%, good supra nan assemblage median. Management is aiming astatine having 100-plus beingness stores, astir doubling its beingness beingness by nan extremity of 2023. The institution intends to execute $2 cardinal successful gross successful nan adjacent 5 years. This outlook is based connected nan presumption that location will beryllium improved postulation and less operating disruptions globally. Additionally, nan patient expects to retrieve successful Mainland China arsenic COVID-19 restrictions person now been lifted.

Moreover, nan institution plans to diversify its merchandise statement crossed seasons, categories, and geographies. That will let its consumers to acquisition nan marque successful caller ways. According to nan Consumer Market Outlook, nan world apparel marketplace will summation to almost USD2 trillion by 2027. This outlook is apt to beryllium favorable successful GOOS's world and class description plans. To that end, GOOS has doubled its finance successful R&D complete nan past 4 years.

Weaknesses

Canada Goose is considered a premium luxury brand; therefore, nan pricing is assumed to beryllium high. I person concerns astir this - sure, nan products are superior, but pinch a number of well-established competitors GOOS is taxable to value sensitivity. Several brands, for illustration Columbia Sportswear (COLM) and The North Face (VFC), supply high-quality products pinch importantly little pricing than GOOS. Although these names don't autumn nether nan premium luxury category, they are highly reputable brands tin of competing pinch brands for illustration Canada Goose and Moncler (OTCPK:MONRF).

Data by YCharts

While GOOS shows nan imaginable for semipermanent growth, I americium concerned astir its existent financial health. Its accounts receivables show an expanding inclination and person much than doubled since April 2022. There tin beryllium 2 assumptions made here. First, GOOS is allowing its customers to bargain its products connected credit. Second, nan receivables are accumulating arsenic it is incapable to cod those payments connected time. Both of these scenarios tin wounded nan financial wellness of a institution if it's successful a maturation phase, which applies to GOOS. This is reflected successful its driblet successful rate and antagonistic rate travel from investing and financing activities.

Data by YCharts

Despite its maturation description scheme and its increasing world presence, Canada Goose Holdings remains heavy limited connected nan North American market. This could limit its maturation imaginable and expose it to location economical risks. The institution has a agelong measurement to spell earlier it establishes itself successful different overseas markets. China decidedly remains a hope, but I'll hold earlier predicting nan outcome.

Valuation

The mean price-to-earnings (P/E) ratio of nan firms successful GOOS's adjacent group is 12x. In contrast, GOOS has a P/E ratio of 41x, indicating that investors mightiness person precocious expectations for nan company's maturation and early earnings. However, a precocious P/E ratio mightiness besides bespeak that nan banal is overvalued. Its EV/EBITDA is besides astir double erstwhile compared to its peers. Again, this mightiness propose that nan patient is overvalued, indicating nan anticipation of little profitability comparative to its full endeavor value.

I person performed intrinsic valuations by averaging nan results of 3 methods: discounted rate flows (DCF), endeavor worth to EBITDA (EV/EBITDA), and P/E multiples. The consequence gives an mean banal value of $9, whereas nan existent banal value of GOOS is $19.5 (as of Feb. 13, 2023). This shows that GOOS is complete 100% overvalued.

Intrinsic Valuation of Canada Goose Holdings Inc (Created by writer utilizing information from Seeking Alpha)

I person assumed a cyclical shape successful its free rate flows. The endeavor worth utilizing nan DCF method is evaluated based connected this assumption. We should support successful mind that nan intrinsic worth of a patient is delicate to assumptions. Nevertheless, we get an wide image of GOOS that shows it's highly overvalued.

Conclusion

With its marque reputation, innovative merchandise offerings, and committedness to quality, Canada Goose Holdings is good positioned to proceed its maturation and occurrence successful nan future. Therefore, I will support GOOS connected my watchlist. However, it faces important challenges successful nan highly competitory premium outerwear market. This includes value sensitivity, sustainability concerns, and its dependence connected nan North American market. Before making an finance successful GOOS, I would stay diligent and observe its capacity successful nan world marketplace done nan extremity of 2023. I mightiness beryllium bullish connected its semipermanent growth, but I'm concerned astir Canada Goose Holdings' financial wellness currently. Therefore, I complaint it a hold.

I americium presently moving arsenic an Investment Research Intern astatine Sungarden Investment Publishing. I americium chiefly focused connected Equity Research Analysis. I person besides worked arsenic a Research Analyst successful various industries, specified arsenic healthcare, HVAC, telecommunication, and electrical power. I americium presently pursuing my Masters grade successful Finance pinch a Financial Analytics and Risk attraction astatine Stevens Institute of Technology. I person besides graduated pinch a Masters successful Engineering Management grade from nan Johns Hopkins University.My skills dishonesty successful Financial Analysis and Predictive Modelling, Portfolio Construction, Market Research, Risk and Decision Analysis and Business Development Strategies. Moreover, I americium willing successful exploring nan effect of ESG factors connected a firm's financial performance. Sectors I keenly travel are Consumer Cyclical, Basic Materials and Communication Services. Closely associated pinch writer Modern Income Investor.