Headquartered in Toronto, Ontario, Canada Goose Holdings Inc. (GOOS) is an international luxury performance apparel retailer operating through three segments: Direct-to-Customer (DTC); Wholesale; and Other. Specializing in winter wear apparel, GOOS is expected to witness robust demand this holiday season.

However, recent news surrounding the company’s return policies in China has caused the stock to slump 16.2% over the past month, its worst performance since March 2020. Furthermore, GOOS has an ISS Governance QualityScore of 10, indicating considerable governance risk.

Here’s what could shape GOOS’ performance in the near term:

Dispute with Chinese Regulators

GOOS has been accused of “bullying” its customers in China due to its disputed “no return” policies applicable in the country. While the company claims to have a 14-day refund policy, a customer has been unable to exercise this, leading to a huge media controversy. The Shanghai Consumer Council is currently evaluating the issue. China Consumer Association predicts GOOS will lose customers in the country if it keeps on enforcing its discriminatory policies.

Earlier in September, the company was fined $88,202 for its misleading advertising practices.

Impressive Growth Prospects

Analysts expect GOOS’ revenues to rise 28.6% in the fiscal 2022 third quarter (ending December 2021), 22.2% in fiscal 2022 (ending March 2022), and 16.8% in fiscal 2023 (ending March 2022). EPS is expected to improve 49% in the current quarter, 69.8% in the current year, and 41.7% next year. Moreover, Street expects GOOS’ EPS to improve at a 33.8% CAGR over the next five years.

Stretched Valuation

In terms of forward non-GAAP P/E, GOOS is currently trading at $37.69, 149% higher than the industry average of 15.14x. Its forward non-GAAP PEG multiple of 2.79 is 188.7% higher than the industry average of 0.97.

GOOS’ forward Price/Sales and Price/Cash Flow ratios of 4.8 and 20.51 compare with industry averages of 1.2 and 12.69, respectively. Also, its forward EV/EBITDA multiple of 19.83 is 94.3% higher than the industry average of 10.21.

Consensus Rating and Price Target Indicate Potential Upside

Of the 12 Wall Street analysts that rated GOOS, seven rated it Buy, while four rated it Hold, and one rated it Sell. The 12-month median price target of $54.07 indicates a 32.8% potential upside. The price target ranges from a low of $27.44 to a high of $70.00.

POWR Ratings Reflect Uncertainty

GOOS has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

The stock has a grade of B for Quality and a D for Value and Stability. Its trailing-12-month gross profit margin of 63.49% is 76.9% higher than the industry average of 35.89%, justifying the Quality grade. In addition, the stock’s higher-than-industry valuation and 1.42 beta are in sync with the Value and Stability grades.

Of the 63 stocks in the A-rated Fashion & Luxury industry, GOOS is rated #54.

In total, we rate GOOS on eight different levels. We have also rated GOOD for Growth, Momentum, and Sentiment. Get all GOOS ratings here.

Bottom Line

As a renowned winter wear and luxury performance brand, GOOS is well-positioned to witness substantial revenue and earnings growth this earnings season. However, its recent controversy with China is a cause for concern, as the company might lose out on a large customer base if it fails to exercise its refund policies. Moreover, given the continued supply chain disruptions as travel restrictions are reimposed, it is advisable to wait until GOOS’ operational challenges are resolved before investing in the stock.

How Canada Goose Holdings Inc. (GOOS) Stack Up Against its Peers?

While GOOS has a C rating in our proprietary rating system, you might want to consider looking at its industry peers Hugo Boss AG (BOSSY), Shoe Carnival, Inc. (SCVL), and Caleres, Inc. (CAL), which have an A (Strong Buy) rating.

GOOS shares were unchanged in after-hours trading Wednesday. Year-to-date, GOOS has gained 36.92%, versus a 26.81% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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