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peter bocklandt/iStock via Getty Images

Canada Goose (NYSE:GOOS ) was founded in 1957 by an immigrant in Canada in a small warehouse, after spending long years working as a cutter in other factories. The company's first name was Metro Sportswear, and in this article, we'll take a look and decide whether you could invest in this business at the right price.

While this is a good company, it also comes at a hefty current price.

Let's find out if there are reasons to believe the company may be worth the price.

Since being a beginning winterwear manufacturer back in 1957, the company has evolved. Today, Canada Goose is known as authentic performance luxury clothing - not just jackets, but overall outerwear, knitwear, accessories, footwear, and a function-first lifestyle brand.

The company is well-known - I say this because even in Sweden and Scandinavia, which is across the globe, the company is one of the most beloved brands during winter, spring, and fall - virtually any time the sun isn't baking.

The company tries to use the most premium fabrics and finishings in its products, and its products are made with down, considered to be one of the world's best natural insulators. The company's parkas feature wild coyote fur and goose down, and GOOS operates eight Canada Goose Manufacturing facilities in Toronto, Winnipeg, and Greater Montreal, as well as one facility in Ontario.

The company further works with international manufacturing partners, seven of them, as well as 12 Canadian subcontractors, to ensure quality in the company's products.

The company does not pay a dividend at this particular time, though this may be subject to change. It also does not have a credit rating, and currently holds 48% long-term debt/cap, and a market cap of around $5.3B.

The company's business is understandably seasonal - though in some geographies, such as Canada, it's fair to say that the company's products are in use more often than not.

The company's sales split is interesting when you consider what sort of company this is. 62% of the company's EX-PPE sales are on a direct-to-consumer (DTC) basis, with around 36% wholesale and 6% other.

On a geographical basis, the company has a very appealing geographical split, with almost 25% exposure to every geography, including the US, Canada, Asia, and EMEA. The company has a split fiscal, and the FY21 results for the company were good despite COVID-19.

Over the last few years, the company has made some major shifts. This includes its DTC journey, which now accounts for most of the company sales, new lightweight material, store openings, and launch of knitwear.

The company takes great pride in the quality of its products. It considers them very hard to replicate due to the expertise and depth of manufacturing and sees advantages in its ability to scale its business, its strong heritage, and its very strong Canada focus.

The company's future lies in a few things, where it sees potential to expand.

First, it seeks to drive its DTC mix higher. Since opening its first site in 2014, the company has grown DTC to $528M per year - and the company wants to continue to increase the volume here, while also keeping its appealing mix.

Second, global penetration. The company intends to keep its Canada focus but also wants higher international sales. The company is targeting EMEA, the US, and Asia Pacific with marketing and expansion, and plans to build on this going forward.

Third, a wider variety of products. The company wants more customers to experience the luxury and quality of Canada Goose, growing its down-filled jacket business, but including new product segments such as rainwear, windwear, knitwear, fleece, and accessories, with an incoming segment of footwear that's coming very soon (winter 2021).

Fourth, the company will seek to expand its business margin through leveraging its brand and business model. A larger amount of DTC will result in further gross margin growth as well as operating margins - and the company intends to use pricing power to further improve these things, i.e., increase product prices. GOOS also intends to focus on efficiencies and bring higher amounts of these to the table.

Let's look at how the company has been performing.

Recent results have been very positive. The company communicated its 2Q22 and included an expectation for a very solid winter demand across all sales channels. Company guidance has been updated to include a FY22 revenue of C$1.125B in annual revenues versus a C$1.1B consensus.

GOOS saw revenue increases of over 40%, global e-commerce increases of nearly 34%, and massive China revenue increases. However, wholesale revenue increased as well, and gross profit increased by nearly 1,000 bps or nearly 10%. The company's DTC gross margin fell, however, due to the sales mix reflecting a lower portion of parkas that hold lower profit margins, as well as payroll subsidies that have disappeared compared to YoY.

The company is seeing some massive advantages due to its business model as well, and some of these are worth mentioning.

As a function-first performance luxury outerwear brand, we strive to create products that live up to our purpose, to keep the client cool and the people on one. We've always believed that making our products where they are supposed to be made and not chasing margins in low-cost environments was a sustainable decision. That decision became and continues to be a competitive advantage.

In today's environment, we have seen just how much of an advantage it truly is. Despite losing production for 3 months last year, we are not short supplied. Weaknesses of unprepared supply chains have been exposed. Unlike others, the flexibility of our supply chain is an asset in the dynamic environment that we face today. Because of this, we do not expect any material revenue headwinds relating to supply or shipping constraints this fall or winter.

(Source: Canada Goose Earnings Call 2Q22)

There is, to my mind, great appeal in investing in goods considered premium. What we're seeing is that these brands and brand houses usually trade at massive premiums because of the time they've been listed on the market, and the well-known advantages the companies have. Now, I'm not comparing GOOS to Ferrari (RACE), but I am saying that GOOS considers itself, and rightly so, a premium brand, and this can be considered.

With results looking excellent and the forecasted 2021E sales season in winter looking very good, it's no wonder that the market traded the company up massively, to where it jumped nearly 20%, which is higher than we've seen since 2019. It's not ATH, but it's getting there, and any COVID-19 recovery is certainly done here.

So, results were much better than expected - and these trends look to continue. But I want to finish this segment by talking about something else.

Shareholder returns. When a company does not pay a dividend, we need to look at how we're getting our shareholder returns. If you had invested during 2019, today's returns would be negative 15% if investing at a similar level to today or around $55/share. If you'd bought the company at listing, your returns would be around 27% annually, which is excellent, but almost 6% RoR is coming from the bounce from yesterday.

Companies can also provide shareholder returns in the form of share buybacks. The company did launch a share buyback program for up to 6M company shares, which represents a SA lowering of around 10% of the public float here. This is a different way that companies may enhance shareholder returns - and typically, luxury companies do not pay a substantial dividend, but rather reinvest and buy back their shares.

Going into valuation, you need to be comfortable with the fact that GOOS does not pay a dividend - and given current trends, I wouldn't hold my breath for management deciding that this is the way to go about delivering returns to shareholders at this time.

So, without dividends, we need to look at valuation without dividends. And even without this, there is a lot to like about Canada Goose earnings estimates. Current estimates call for the company to grow 30% each year until 2024. If this actually materializes at 30X P/E, you could enjoy 4-year returns of around 21%, which isn't bad, but it also isn't in any way beating other, safer investments you can make in the market that also have yields.

The simple fact is that Canada Goose is trading at very high multiples - currently 54.5X to average weighted, and around 32.8X to 2023E fiscal multiples, expecting a 2022 EPS growth of 66%, followed by another 40% EPS growth in 2023.

Those are some pretty high expectations to go into and expect a 30X+ P/E from this company, and forecasts reflect this.

(Source: F.A.S.T graphs)

However, Canada Goose is not your typical apparel brand. I don't see a competitor replacing this brand over the next few years, and this premium space is a very difficult market segment to simply get into. The brands found here are heavy with tradition and history, and often operate manufacturing found in western countries as opposed to Asia or low-cost manufacturing bases. It's part of what they sell. History has proven not only in apparel, but in other luxury brands, that these premia are not transitory, nor can they be brushed aside as market overreactions. They are very real.

I, therefore, based on the moat, management, and quality, believe that a premium is justified here - and 30X P/E is one I would accept for Canada Goose if offered at such valuation.

Unfortunately, that's not where Canada Goose currently trades - especially not after yesterday. Yesterday, before market opening, GOOS traded at around 37X P/E, a much more palatable valuation. Today, it's 54X. That's a harder sell to me.

I believe the company will deliver on its growth prospects, and I believe management will successfully guide the company through these climates, based on historical track record and the company's product quality.

However, this stock is volatile. Incredibly so.

(Source: F.A.S.T Graphs)

Over the past 4 years, it's traded as low as 20X P/E, and as high as 76X P/E. There is plenty of loss potential to be had here if you invest at the wrong valuation.

Even analysts consider the company to be richly valued here, giving the company a 3% overvaluation to an average price target of $58.88 Canadian. I agree with this assessment and would consider GOOS a "HOLD" here with a conservative price target of $50-$55 Canadian before investing. Even at that price, there are plenty of companies with better yields and potential annualized RoR, but at least at that price, it can be justified to invest.

At this price, I don't see this.

However, that does not mean there is no way to invest in GOOS.

As I said, I consider the shares overvalued here, and would not invest in the common until they drop back down, or until we get a better deal with respect to earnings.

Selling cash-covered put options is another good way to make money off a company while waiting for it to drop further and making money until then. Because of the company's position, and a lower price being even more appealing, this could make it perfect for a nice put.

As of writing this article, I was able to find the following put. Please observe that these are the US-listed options, and the prices are USD.

(Source: Author's Data, Google Sheets, Option data from IBKR/Yahoo Finance)

Even though this is technically palatable, it's still a hard sell to me. Because the strike pretty much represents the pre-rally price of around $36/share, what you're bidding on is the company's share price a few days ago. I consider it not unlikely that you will be assigned shares here, and since there's no dividend, what you'll get is buying GOOS at around 37X average P/E.

Is it good enough? You'll have to decide for 6.56% annualized at $3,500 cash outlay.

For me, I say "Not good enough" here.

I don't see this as a particularly good nor valid option at this time, given the potentially likely scenario of assignment if the company continues climbing - which it very well might.

I don't view covered calls as interesting here.

The current GOOS thesis is as follows:

This process has allowed me to triple my net worth in less than 7 years - and that is all I intend to continue doing (even if I don't expect the same rates of return for the next few years).

If you're interested in significantly higher returns, then I'm probably not for you. If you're interested in 10% yields, I'm not for you either.

If you however want to grow your money conservatively, safely, and harvest well-covered dividends while doing so, and your time frame is 5-30 years, then I might be for you.

GOOS is a "HOLD" here due to what I consider to be overvaluation. However, it's a luxury company that could become cheap very quickly - and that's why I intend to keep a very close eye on it.

This article was written by

36 year old DGI investor/senior analyst in private portfolio management for a select number of clients in Sweden. Invests in USA, Canada, Germany, Scandinavia, France, UK, BeNeLux. My aim is to only buy undervalued/fairly valued stocks and to be an authority on value investments as well as related topics.

I am a contributor for iREIT on Alpha as well as Dividend Kings here on Seeking Alpha and work as a Senior Research Analyst for Wide Moat Research LLC.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: While this article may sound like financial advice, please observe that the author is not a CFA or in any way licensed to give financial advice. It may be structured as such, but it is not financial advice. Investors are required and expected to do their own due diligence and research prior to any investment. Short-term trading, options trading/investment and futures trading are potentially extremely risky investment styles. They generally are not appropriate for someone with limited capital, limited investment experience, or a lack of understanding for the necessary risk tolerance involved. I own the European/Scandinavian tickers (not the ADRs) of all European/Scandinavian companies listed in my articles. I own the Canadian tickers of all Canadian stocks I write about.