Canada Goose Holdings Inc. (TSX: GOOS) is a leading luxury apparel manufacturer company which designs, manufactures, distributes and retails premium outerwear for men, women, and children. The products are sold through select outdoor, luxury and online retailers and distributors across America, Europe, Asia etc.  

Why should Investor’s book profit?

• Weak profitability margins: In Q2FY22, the company reported its EBITDA margin and operating margin of 12.7% and 4.9%, respectively, lower than the industry median of 16.3% and 14.4%, respectively. Moreover, the net margin stood lower at 3.9% in Q3FY21, as compared to the industry median of 11.1%. A lower margin indicates weak operational efficiencies.

• Lengthy Cash conversion period: The cash conversion period of GOOS during Q2FY22 stood 360.6 days, as compared to the industry median of 86.3 days. A higher cash conversion period implies that the company is taking higher time to convert its investments in raw materials to cash flows. This is a key concern for the company.

• Highly leverage balance sheet: The investors of GOOS are prone to higher balance sheet risk, as the long-term debt to total capital of the company stood at 56.5% in at the end of Q2FY22, higher than the industry median of 17.8%. Additionally, the D/E ratio of the company stood at 1.81x at the end of Q2FY22, significantly higher than the industry median of 0.37x. A higher D/E ratio implies greater balance sheet risk associated for the investors. 

Valuation Methodology (Illustrative): Price to Earnings based relative valuation  

Analysis by Kalkine Group 

Stock Recommendation: 

Due to the recent outbreak of new variant of virus and increasing restrictions, the company might witness a lower footfall across its retail stores and might lead to lower sales volumes. We have valued the stock using P/E based relative valuation approach and arrived at a target price offering double-digit downside potential (in % terms). We have considered peers like Deckers Outdoor Corp, Aritzia Inc etc. Considering the above-mentioned facts, we give a ‘Sell’ rating on the stock of GOOS at the closing price of CAD 43.45 on February 09, 2022. 

1-Year Technical Price Chart (as on February 09, 2022). Source: REFINITIV, Analysis by Kalkine Group 

* The reference data in this report has been partly sourced from REFINITIV. 

* All forecasted figures and industry information have been taken from REFINITIV. 

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