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Canada Goose GOOS has had a nice rally off its pandemic lows, having nearly tripled in price, but I am skeptical about this luxury retailer's ability to grow into its currently rich valuation multiple. It’s a very niche and cyclical business with unreliable and inconsistent revenue drivers.
GOOS sold off over 13% this morning following a June quarter earnings report that fell short of analysts’ expectations, a rarity amid this record earnings season. This miss is forcing investors/traders to reassess the stock’s current price level. Analysts have been dropping their EPS estimates for months now and after this abysmal report it will only continue, pushing GOOS into a Zacks Rank #5 (Strong Sell).
Canada Goose is a high-end coat retailer that may be getting a little too hot going into this highly anticipated summer of restored normalcy. The seasonal nature of this retail enterprise is unfortunately timed with the end of this pandemic. As other luxury brands will likely experience a demand boost from increased foot traffic due to the economic reopening, Canada Goose will probably not capture much of that pent-up demand to spend on big-ticket items.
Seasonally the company does its worst during the summer, as you would reasonably expect from a coat company. As consumers spend that extra cash in their pocket this summer, most will not be thinking of buying a high-end winter coat, and once winter comes around, all that pent-up demand and extra cash will likely have already been spent.
Analysts have significantly dropped their EPS expectations for the current quarter in anticipation of weak demand.
Will Demand Growth Last?
From my point of view, it seems like almost everyone who wants a Canada Goose coat has already gotten one. This type of niche retail business model doesn’t have the reliable, consistent revenue I like for a long-term investment. It is also a fashion brand that could quickly go out of style with shifting trends.
GOOS’s over 42.5 forward P/E is exceedingly difficult for me to justify under the conditions I laid out above. I am not suggesting that you short sell this stock, but it may be prudent to take profits or reduce your exposure to this position at these levels if you are long.
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Canada Goose Holdings Inc. (GOOS) : Free Stock Analysis Report
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