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Bear Of The Day: Canada Goose (GOOS)

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Canada Goose (GOOS - Free Report) has had a good rally off its pandemic lows, having more than tripled in price. Still, 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 nearly 10% following a March quarter earnings report that beat analysts’ expectations, but provided softer than expected forward guidance, forcing investors to question its current price level. Analysts have been dropping their EPS estimates since the company reported on March 14th, pushing GOOS into a Zacks Rank #5 (Strong Sell).

Unfortunate Timing 

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 if management doesn't constantly adapt.

GOOS’s over 36x forward P/E is very 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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