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Should Investors Buy The Dip In Canada Goose?

May 30, 2019 3:06 pm
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Should Investors Buy The Dip In Canada Goose?

Canada Goose Holdings Inc (NYSE:GOOS) reported Wednesday fiscal fourth-quarter results, which prompted a 30-percent plunge in the stock.

Should investors be buyers of the dip? The Street debates what's next for the Canada-based company.

The Analysts

Wells Fargo's Ike Boruchow maintains a Market Perform rating on Canada Goose with a price target lowered from C$68 to C$55.

Canaccord Genuity's Camilo Lyon maintains at Buy, price target lowered from C$95 to C$82.

Baird's Jonathan Komp maintains at Neutral, price target lowered from C$75 to C$57.

Wells Fargo: 'Not Good Enough'

Canada Goose's quarter was "not good enough" for a stock trading at a notable premium to its peers, Boruchow wrote in a note. Specifically, two near-term concerns are dominating the conversation:

  1. A surprising sales miss after beating estimates every quarter by at least 10 percent since its IPO with an average beat of 25 percent.
  2. Management suggested fiscal first-quarter losses will be "materially larger" year over year.

Boruchow said the direct-to-consumer business is showing signs of moderating growth despite a faster square footage growth. This implies negative store comps and larger levels of margin deleverage during off-peak selling periods.

Bottom line, investors may want to remain on the sideline and wait for "greater clarity" or until the stock falls to a "compelling valuation."

Canaccord: 'Bargain Basement' Valuation

Canada Goose's 30-percent decline implies the stock is now trading at a "bargain basement" valuation, Lyon wrote in a note. Specifically, shares are trading at 27 times fiscal 2020 EPS and 17 times EBITDA. All of these metrics suggest a "distinct dislocation" in Canada Goose's assets relative to its projected growth.

Similar high-quality apparel brands are trading at similar or even higher multiples but with notably less revenue growth and less margin expansion potential, the analyst said. As such, the stock's "dramatic over-reaction" should be bought by investors as the long-term growth story remains unchanged.

Baird: 'Warming' Stock

Canada Goose's earnings fell short of expectations but the brand's momentum remains healthy, Komp wrote in a note. Revenue growth across Canada, the U.S., and the rest of the world were up 28 percent, 36 percent and 61 percent, respectively. The company still has growth opportunities in key global markets like China and new product launches like cold weather footwear.

However, the report likely signals the slowdown in the DTC business could take a few quarters to resolve and any near-term drivers of growth are now "less visible." As such, patient investors may want to take another look at the stock as the valuation is "warming."

Price Action

Shares of Canada Goose hit a new 52-week low of $33.53 before rebounding and trading higher by 5 percent at $35.59 Thursday afternoon.

Related Links:

Bank Of America Downgrades Canada Goose, Highlights Slowing DTC Business

Athletic Apparel Brands, Retailers Face Difficult Back-To-School Season

Photo by Gaelen Marsden/Wikimedia.

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