Canada Goose (NYSE: GOOS) is a Canadian luxury outerwear company known for its iconic parkas and jackets. The stock has seen tremendous growth since its IPO in 2017, but after reaching all-time highs in 2021, the stock price has pulled back significantly in 2022.
In this article, we’ll take a closer look at Canada Goose’s business, growth opportunities, risks, and valuation to determine how high the stock may rise in the future.
Brief Overview of Canada Goose
Canada Goose was founded in 1957 in Toronto, Canada. The company started by making functional outerwear for Arctic scientists and eventually gained popularity as premium outdoor gear. Canada Goose went public on the NYSE and TSX in March 2017 and the stock quickly became one of the hottest apparel IPOs of the decade.
The company is best known for its Expedition Parka which retails for around $1,000 USD and features coyote fur trim and a “Thermal Experience Index” rating indicating how well it protects against extreme cold. Canada Goose has expanded its product line to include lighter jackets, fleece, hats, gloves, and accessories while maintaining its focus on cold-weather performance.
Canada Goose uses a made-in-Canada manufacturing strategy with most of its products produced domestically. This helps justify the luxury price points and creates a more ethical image than offshore mass production. The iconic circular red, white, and blue logo is inspired by the Canadian rangers and is considered a symbol of authenticity.
In addition to wholesale retailers, Canada Goose now has its own ecommerce site and dozens of standalone retail stores across the world’s major cities. Recent store openings include Milan, Paris, Beijing, Tokyo, and New York City.
Growth Drivers
Canada Goose has several drivers supporting continued growth:
Brand equity and pricing power
As a recognized leader in premium outerwear, Canada Goose enjoys exceptional brand equity, especially among affluent consumers. The brand has become an aspirational status symbol in key markets like China. This gives Canada Goose substantial pricing power as customers are willing to pay a premium for the functionality, quality, and prestige of the brand. Canada Goose has raised prices across its product line by around 5% annually in recent years.
International expansion
While Canada Goose generated the majority of its revenue in Canada as recently as 2015, the company is now successfully expanding in the U.S., Europe, and Asia. International markets now make up around 75% of total sales. Key areas targeted for growth include Mainland China, where sales increased over 40% in 2021, and new markets like South Korea. Expanding global operations should support strong growth for years to come.
Direct-to-consumer focus
Canada Goose is transitioning from a primarily wholesale model to direct-to-consumer (DTC). DTC provides higher margins and greater control over the brand experience. Canada Goose plans to open 20-30 new stores per year focused on global metropolises and high-traffic destinations. The ecommerce channel grew over 40% in 2021 and should see continued expansion.
New product introductions
While best known for parkas, Canada Goose has been innovating with new product lines including lightweight jackets, fleece, knitwear, and footwear. These new categories can attract customers in warmer climates and for milder seasons, increasing sales opportunities beyond Canada Goose’s traditional cold-weather core products.
Risks and Challenges
Canada Goose also faces a variety of risks that could limit upside for the stock:
Luxury market volatility
As a luxury apparel company, Canada Goose is vulnerable to downturns in consumer discretionary spending during recessions. Luxury retail saw declines in 2008-09, 2020, and early 2022 during periods of economic uncertainty. If affluent consumers become more cautious with spending, Canada Goose sales may weaken.
Fashion risks
Canada Goose parkas have been popular for decades, but consumer tastes can change quickly. The luxury outerwear market is seeing more competitors like Moncler and Moose Knuckles. If Canada Goose jackets went out of favor as a status symbol, the brand could lose traction.
Geographic concentration
Despite international growth initiatives, Canada Goose is still highly dependent on the Canadian and U.S. markets. These two countries generated around 60% of revenue in 2021. Poor performance in Canada and the U.S. could significantly impact the business.
Counterfeiting
As an iconic luxury brand, Canada Goose faces challenges with counterfeit versions of its jackets being sold illegally. Counterfeits may confuse some consumers and dilute the exclusivity of the brand. Canada Goose devotes substantial legal resources to combat counterfeiting.
ESG concerns
The use of coyote fur and down in Canada Goose products has drawn criticism from animal welfare advocates. Younger luxury consumers in particular are increasingly focused on ethical and sustainable sourcing. This could put pressure on the brand’s image if alternatives aren’t adopted.
Recent Financial Performance
Canada Goose has achieved stellar growth since its IPO:
Fiscal Year | Revenue (CAD Millions) | Adjusted EPS |
---|---|---|
2018 | 590.6 | 1.09 |
2019 | 748.1 | 1.18 |
2020 | 951.1 | 1.24 |
2021 | 1,098.8 | 1.53 |
2022 | 1,099.5 | 1.11 |
Revenue has nearly doubled since 2018 while adjusted earnings per share have grown at a steady double-digit pace. In fiscal 2022, results were impacted by lower retail traffic, supply chain disruptions, and Covid impacts in Asia.
Valuation
As of October 20, 2023, Canada Goose trades around $21 USD per share with a market capitalization of $2.2 billion. The stock reached a post-IPO high above $50 in late 2021 and is currently around 60% below that peak.
Canada Goose expects to generate around $1.6 billion CAD in revenue and $1.02 CAD in adjusted EPS in fiscal 2023. This implies a current P/S ratio around 1.4x and P/E ratio around 20x management’s guidance.
Over the past 5 years, Canada Goose has traded between P/S of 2x-12x. The current valuation is below both the historical average and management’s long-term target range of 2.5x-3.5x sales. This suggests the stock may be undervalued relative to historical norms.
Price Targets
According to consensus analyst estimates, the average 12-month price target for Canada Goose is $31 USD, representing around 50% upside from current levels. Analysts are forecasting an average of 26% revenue growth and 37% EPS growth annually over the next 3 years.
UBS recently upgraded Canada Goose from Neutral to Buy with a $30 price target based on renewed growth opportunities. UBS believes margins should improve as production shifts in-house and retail expands.
Wells Fargo is also bullish with a price target of $30, citing Canada Goose’s category leadership and international runway for expansion. Wells Fargo sees the recent stock decline as a buying opportunity.
Conclusion
In summary, Canada Goose continues to have compelling growth drivers as it expands globally, focuses on direct-to-consumer, and innovates new products. The valuation looks attractive compared to historical levels and analyst growth projections.
However, the stock is not without risk given luxury sector volatility and potential for changing consumer preferences. Conservative investors may want to wait for clearer signs of recovery after recent disruptions.
Upside projections from analysts center around $30-35 per share, representing 50-70% above the current stock price. This suggests Canada Goose stock could potentially double from current levels if the company executes well on its growth strategy and the valuation rebounds closer to historical norms.
While unlikely to repeat the meteoric rise seen after its IPO, Canada Goose stock still seems to have meaningful appreciation potential over the next 2-3 years. A return to all-time highs above $50 would require nearly perfection in terms of financial performance and market sentiment, but appears possible on a longer time horizon.