Shares of Canada Goose (GOOS 1.14%) are down 55% from their 52-week high due to a combination of rising inflation worldwide (which reduces consumers' spending power) and the stop-and-go economic reopening approach taken by China -- a key market for the luxury winter wear maker.
But there's a lot to like about this maker of high-end parkas and puffer jackets. With winter in the air, it's time to take a fresh look at Canada Goose.
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Luxury products, bargain stock price
Unlike many stocks that investors have sold off this year, Canada Goose is profitable, and its shares look too cheap to ignore at just 10 times forward earnings. Furthermore, Canada Goose also looks reasonable based on its price-to-earnings-growth (PEG) ratio, which factor a company's expected bottom-line growth into its valuation. If a stock has a PEG ratio below 1.0, it's generally considered to be undervalued, so Canada Goose, with a PEG ratio of 0.86, looks attractive.
It appears that the company's management also believes shares are undervalued. The Board recently launched a new share repurchase program that authorizes the company to buy back nearly 10% of its current public float. Share repurchases are accretive to shareholders when a company buys back its shares at prices below their intrinsic value, and they also help to increase earnings per share over time by reducing the total number of shares outstanding.
More than just China
During the most recent quarter, Canada Goose posted impressive revenue growth of 19% despite the challenges it is facing in China. The company also improved its gross margin from 58% to 59.8% by shifting more sales toward its direct-to-consumer channel. On the negative side, the company trimmed its 2023 revenue guidance range to $1.2 billion to $1.3 billion from its previous range of $1.3 billion to $1.4 billion. While conditions in China are generating headwinds for the company right now, CEO Dani Reiss says that the brand remains strong there, so it should benefit when China's economy eventually normalizes.
Meanwhile, the company isn't sitting on its hands -- it is expanding into other lucrative Asian markets such as Japan and South Korea through joint ventures. Data from Statista shows that the Japanese luxury market will be worth $26.4 billion in 2022, and Canada Goose is clearly angling to capture a slice of it. The market is expected to grow at a 7% compound annual rate between 2022 and 2027. South Korea -- with a population less than half the size of Japan's -- has a luxury goods market of $6 billion, but that market is expected to grow at a 6% compound annual rate through 2027.
Reiss said that Canada Goose's store openings through its partner in Osaka, Japan, has been encouraging, and that he is "pleased to see our brand elevating as we open in some of the most influential retail locations in the country." In South Korea, the company has opened 14 "shop-in-shops" with its new distributor.
Flying west for the winter
Also, as part of its "Quest West" strategy, Canada Goose is growing its footprint in some lucrative markets in the western United States such as Las Vegas, Denver, and Aspen where it previously didn't have a physical presence. Las Vegas looks like an ideal market for the company as it is a major tourist destination and a place where some potential buyers will be flush with disposable income and feeling good after winning at the casino or sportsbooks. Aspen seems like a good fit because of its status as a high-end skiing destination with a well-heeled clientele.
With an attractive valuation, great margins, challenges in China that should eventually turn from headwinds into tailwinds, and a growing presence in lucrative new markets, Canada Goose looks like a good stock for risk-tolerant investors to pick up while it's still cheap.
