Normally in these weekly musings I talk about gold, which had a nice bounce after the FMOC meeting on Wednesday, but since I have nothing more to add than that, let’s instead examine a more interesting story: Canada Goose – GOOS.TO on Toronto, or GOOS in New York.
The shares IPO’s on New York at $17 in New York, and bounced up to $18, before closing on opening day at $16.08 US, but they started the day up on Friday. Action in Toronto was similar. So what’s the problem? There are lots of things not to like about this IPO.
Lousy Share Structure
The shares issued are subordinate voting shares. Bain Capital owned 70% of the stock before the IPO, and continues as the dominant shareholder, because the shares in the IPO have subordinate voting rights. In other words, Bain Capital is calling the shots, not the shareholders. As reported in the Motley Fool:
The shares come with one vote per share, while Bain and CEO Dani Reiss retain multiple voting shares that give them 10 votes per share, allowing them to retain control even after selling up to 15% of its business.
The power rests with management, not the shareholders. That may or may not be a problem. We shall see.
Insider Selling
Half of the funds raised in the IPO were from insider’s selling (i.e. Bain Capital), as opposed to shares from the treasury. I like to see a company doing an IPO because they are growing, and need to raise capital to grow. That’s not the case here. This IPO was to allow Bain Capital to “cash out”, at a nice premium to what they paid back in 2013.
I understand how venture capital firms work. They buy in a few months, or a few years, before an IPO, and if all goes well they reap huge profits. That’s what happened here. I would have less of a problem if the original founders were cashing in, but that’s not the case. Again, that’s business. I don’t object to Bain making money. I worry that the funds from the IPO are not for future growth, and that’s not great news for shareholders.
Winter Coats
Canada Goose makes winter coats. Even here in the cold weather of Canada it’s only cold enough to wear a Canada Goose coat in perhaps four months of the year, and then only on perhaps half of those days each month. This is a very seasonal apparel manufacturer. Can a company continue to grow selling a product that is highly seasonal? This is also a product that won’t be sold in the southern U.S., so the market for growth is limited.
Expensive Winter Coats
Not only are the coats only good in the winter, but they are very expensive.
I did a Google search for “Canada Goose”, and as you can see by the results on the left, it is actually possible to pay over $4,000 US for a Canada Goose coat.
The typical price for a typical model is around $1,000 Canadian in the store. That’s a lot for a coat, when you can buy a coat that will keep you just as warm for a lot less.
This seems like a fad, as opposed to a practical winter garment.
The economy is going great guns now, so perhaps $1,000 for a coat that you will only wear 20 or 30 times a year is not an issue, but what happens if we ever get into a recession? The boom can’t go on forever, and if we hit tough times I’m guessing that there will be fewer consumers willing to spend $1,000 or more on a coat.
I could be wrong, but I don’t see great growth prospects for Canada Goose, so I didn’t buy during the IPO, or after, nor will I. I could be wrong, but I don’t like the odds, so I’m staying away.
A Market Top
My worry, when investors are buying Canada Goose, and Snapchat, at ridiculous valuations, is that we may be nearing a top. The FTSE All World Index, comprised of the stock exchanges from 47 countries, just made an all time high. That’s due in part to the frothiness of the US market, but the world is also up. Everyone is happy. No-one is worried. That worries me.
If I had to guess, I would guess that we are heading for a blow-off top, at some point between now and the end of the summer. The American markets could jump 10% or more from here, in rapid fashion, and that probably presages the end. Bust follows boom.
I hope I’m wrong, but that’s how I see it.
At least you can stay warm in your Canada Goose coat.
Thanks for reading. See you next week.
Canada Goose IPO: Proof of a Market Top?
by JDH on March 18, 2017
Normally in these weekly musings I talk about gold, which had a nice bounce after the FMOC meeting on Wednesday, but since I have nothing more to add than that, let’s instead examine a more interesting story: Canada Goose – GOOS.TO on Toronto, or GOOS in New York.
The shares IPO’s on New York at $17 in New York, and bounced up to $18, before closing on opening day at $16.08 US, but they started the day up on Friday. Action in Toronto was similar. So what’s the problem? There are lots of things not to like about this IPO.
Lousy Share Structure
The shares issued are subordinate voting shares. Bain Capital owned 70% of the stock before the IPO, and continues as the dominant shareholder, because the shares in the IPO have subordinate voting rights. In other words, Bain Capital is calling the shots, not the shareholders. As reported in the Motley Fool:
The power rests with management, not the shareholders. That may or may not be a problem. We shall see.
Insider Selling
Half of the funds raised in the IPO were from insider’s selling (i.e. Bain Capital), as opposed to shares from the treasury. I like to see a company doing an IPO because they are growing, and need to raise capital to grow. That’s not the case here. This IPO was to allow Bain Capital to “cash out”, at a nice premium to what they paid back in 2013.
I understand how venture capital firms work. They buy in a few months, or a few years, before an IPO, and if all goes well they reap huge profits. That’s what happened here. I would have less of a problem if the original founders were cashing in, but that’s not the case. Again, that’s business. I don’t object to Bain making money. I worry that the funds from the IPO are not for future growth, and that’s not great news for shareholders.
Winter Coats
Canada Goose makes winter coats. Even here in the cold weather of Canada it’s only cold enough to wear a Canada Goose coat in perhaps four months of the year, and then only on perhaps half of those days each month. This is a very seasonal apparel manufacturer. Can a company continue to grow selling a product that is highly seasonal? This is also a product that won’t be sold in the southern U.S., so the market for growth is limited.
Expensive Winter Coats
Not only are the coats only good in the winter, but they are very expensive.
I did a Google search for “Canada Goose”, and as you can see by the results on the left, it is actually possible to pay over $4,000 US for a Canada Goose coat.
The typical price for a typical model is around $1,000 Canadian in the store. That’s a lot for a coat, when you can buy a coat that will keep you just as warm for a lot less.
This seems like a fad, as opposed to a practical winter garment.
The economy is going great guns now, so perhaps $1,000 for a coat that you will only wear 20 or 30 times a year is not an issue, but what happens if we ever get into a recession? The boom can’t go on forever, and if we hit tough times I’m guessing that there will be fewer consumers willing to spend $1,000 or more on a coat.
I could be wrong, but I don’t see great growth prospects for Canada Goose, so I didn’t buy during the IPO, or after, nor will I. I could be wrong, but I don’t like the odds, so I’m staying away.
A Market Top
My worry, when investors are buying Canada Goose, and Snapchat, at ridiculous valuations, is that we may be nearing a top. The FTSE All World Index, comprised of the stock exchanges from 47 countries, just made an all time high. That’s due in part to the frothiness of the US market, but the world is also up. Everyone is happy. No-one is worried. That worries me.
If I had to guess, I would guess that we are heading for a blow-off top, at some point between now and the end of the summer. The American markets could jump 10% or more from here, in rapid fashion, and that probably presages the end. Bust follows boom.
I hope I’m wrong, but that’s how I see it.
At least you can stay warm in your Canada Goose coat.
Thanks for reading. See you next week.