V.F. Corporation (NYSE:VFC) shares are up more than 38.50% this year and recently increased 0.74% or $0.54 to settle at $73.89. Canada Goose Holdings Inc. (NYSE:GOOS), on the other hand, is up 70.90% year to date as of 11/24/2017. It currently trades at $27.48 and has returned 9.66% during the past week.
V.F. Corporation (NYSE:VFC) and Canada Goose Holdings Inc. (NYSE:GOOS) are the two most active stocks in the Textile – Apparel Clothing industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect VFC to grow earnings at a 7.10% annual rate over the next 5 years. Comparatively, GOOS is expected to grow at a 22.79% annual rate. All else equal, GOOS’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. V.F. Corporation (VFC) has an EBITDA margin of 14.83%. This suggests that VFC underlying business is more profitable
The value of a stock is simply the present value of its future free cash flows. VFC’s free cash flow (“FCF”) per share for the trailing twelve months was -0.50. Comparatively, GOOS’s free cash flow per share was -0.16. On a percent-of-sales basis, VFC’s free cash flow was -1.64% while GOOS converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, GOOS is able to generate more free cash flow for investors.
VFC trades at a forward P/E of 21.43, a P/B of 7.38, and a P/S of 2.47, compared to a forward P/E of 48.21, a P/B of 27.87, for GOOS. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. VFC is currently priced at a 0.87% to its one-year price target of 73.25. Comparatively, GOOS is 0.66% relative to its price target of 27.30. This suggests that GOOS is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.50 for VFC and 2.10 for GOOS, which implies that analysts are more bullish on the outlook for VFC.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. VFC has a short ratio of 7.22 compared to a short interest of 3.00 for GOOS. This implies that the market is currently less bearish on the outlook for GOOS.
Canada Goose Holdings Inc. (NYSE:GOOS) beats V.F. Corporation (NYSE:VFC) on a total of 9 of the 14 factors compared between the two stocks. GOOS is more profitable, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. GOOS is more undervalued relative to its price target. Finally, GOOS has better sentiment signals based on short interest.