IN A BITCOIN FRENZY; LONG BTC MINERS & SHORT BTCBitcoin ("BTC") prices are on a tear. It has rallied +57% since the start of September and is on course to clock fourth sequential month of rising prices. Four forces are driving a blistering rally. Euphoria linked to BTC spot ETF. Bullishness in all “Risk On” assets. Regulatory clarity. BTC halving.
In a BTC rally, portfolio managers can gain exposure to the sector in multiple ways. These include a long position in (a) BTC, (b) BTC Futures, (c) Listed BTC miners’ stocks, (d) Crypto Exchanges, or (e) ETF on Listed BTC Miners (“Miners ETF”).
Each of these presents its own benefits and challenges. This paper summarises the forces driving the bull run and analyses the price behaviour of Miners ETF (represented by Valkyrie Bitcoin Miners ETF “WGMI”) vis-a-vis BTC.
Since June when market caught on to the excitement of a BTC Spot ETF, BTC prices have rallied relative to WGMI.
In the near term, will the ETF catch up with the bull rally in BTC? Has the BTC price rally run ahead of itself?
UNPACKING WGMI ETF
WGMI is an actively managed ETF that invests in listed BTC miners. It is issued by Valkyrie Funds LLC.
The ETF objective is to invest >80% of its net assets in firms that derive >50% of their revenue or profits from BTC mining operations and/or from providing specialized chips, hardware and software or other services supporting BTC mining.
The Fund will not directly invest in BTC. Neither will it indirectly participate in BTC using derivatives or through investments in funds or trusts that hold BTC.
Source: ETFDB and data last updated 7th/December 2023
WGMI was launched in Feb 2022, it has net assets of USD 33 million and an expense ratio of 75 basis points.
In June, when regulatory approval discussions became louder, WGMI rallied relative to BTC. Net fund flows have been positive for much of the year with rising inflows since start of October.
However, since mid-July, while BTC remained resilient, WGMI came off precipitously. WGMI price meltdown stopped in early Oct and has since started rising. Meanwhile, BTC prices have rallied sharply resulting in a WGMI underperforming BTC by 30%.
BTC BULLS IN FULL FORCE
Four forces are driving BTC frenzy.
1. BTC Spot ETF Euphoria
ETF applications were delayed by the SEC and remain pending. Previously anticipated timeline of between 5th and 10th January 2024 remains the expected approval date.
Source: James Seyffart
2. Risk-on Asset Bull Run
When money flows, it flows everywhere. Equity markets have been on an upward trajectory over the past three months on Fed rate cut hopes. BTC is seen as the risk asset of choice rallying the most.
3. Regulatory Clarity
Recently, Sam Bankman-Fried (SBF), former CEO of FTX, and Binance, the world’s largest crypto exchange were both prosecuted. SBF was convicted of fraud and jailed.
Meanwhile, Binance was imposed USD 4.3 billion in penalties on criminal charges related to money laundering and breach of financial sanctions.
In reaction to these developments, JP Morgan's Nikolais Panigirtzoglou said that "We see the prospect of settlement as positive as uncertainty around Binance itself would subside and its trading and BNB Smart Chain business would benefit.
"For crypto investors the prospect of settlement would see the elimination of a potential systemic risk emanating from a hypothetical Binance collapse.", he added.
4. BTC Halving
BTC derives value from its limited supply. Every four years, the number of BTCs minted as a mining reward, halves and will eventually halt, leading to a fixed supply.
BTC halving occurs every 210,000 blocks. As the average block time is ~10 minutes this gives a ballpark range of four years. Next BTC halving is expected on 19th April 2024, with tiny likelihood that it could take place in March or May.
HYPOTHETICAL TRADE SET UP
BTC appreciation due to halving is well known but its effects on miners is counter intuitive. With halving, the block reward for mining BTC i.e. miner revenues are essentially slashed in half.
Although BTC price appreciation helps offset to some degree, it may not be enough if elevated prices cannot be sustained. Macro conditions have shifted. Energy prices are lower positively impacting the miners. Miner margins are likely to be wider.
Large miners are expanding their hash rate at record clip. This is supported by expansion of hash rate as well as consolidation.
Given the frenzied euphoric run up in BTC prices, BTC price may have run ahead of itself. In order to protect long position in Bitcoin miners against downside moves in volatile cryptocurrency prices, investors can hedge a long position in WGMI with a short position in CME Micro BTC futures.
This Relative Value trade captures the alpha from rising stock prices of miners, while remaining agnostic to the price action on BTC itself.
This paper argues for a hypothetical long position in WGMI ETF hedged by a short position using CME Micro Bitcoin Futures expiring in January 2024 (MBTF2024).
A long-short spread requires the notional of each trade leg to be identical. Each lot of Micro Bitcoin Futures provides exposure to 0.10 bitcoin equating to a notional value of USD 4,544. Given WGMI prices as of market close on 8th December was at USD 14.75 per ETF, 308 ETF units are required.
The hypothetical relative value trade then comprises of 308 WGMI units of ETF hedged by one lot of short position in CME Micro Bitcoin Futures with the following hypothetical trade set up:
• Entry: 0.03246% (USD 14.75 divided by USD 45,440)
• Target: 0.045%
• Stop Loss: 0.027%
• Profit at Target: USD 1,755
• Loss at Stop: USD 676
• Reward/Risk: 2.6x
Please note that the above hypothetical P&L doesn’t include transaction and capital costs.
MARKET DATA
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DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Relativevalue
This trade refuses to stop making moneyThis trade is fairly simple; it's looking to capitalize on the fact that Apple and Microsoft, America's two largest companies by market cap, are enjoying the spoils of immense profitability and revenue growth at the cost of legacy technology + communication providers CSCO and ORCL. I've been in for a while and think now is probably the time to share to the lovely people of TradingView. I've yet to come up with a surer or more liquid bet, and it still seems to have tremendous legs. Everyday I open up my brokerage account it's up 0.5%.
Value Investment - GOOS - Further ExpansionAll comments and likes are very appreciated.
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Canada Goose (NYSE: GOOS) is a vertically integrated 63-year-old manufacturer and retailer of outdoor apparel for men, women, and children-- traditionally known for the famous parka. Canada Goose (CG) is an organic growth story controlled by an excellent family owner/operator and Bain Capital. Multiple upcoming catalysts drive future growth, including a further expansion into China, an upcoming brand extension into shoes, and continued diversification into apparel and light jackets. Since coming public, its stock and sales have doubled; however, the underlying operating profits have gone up five-fold. Fixed cost leverage has become more apparent as the business continues to scale and shift from the low margin wholesale business to the direct-to-consumer (DTC) channel, which has a gross margin uplift of ~ 3,000 basis points. It is rare to find a business growing top-line at a 40% CAGR in tandem with expanding margins (GM +2,200 bps; 5 years), trading at a discount to luxury peers, while stock is off almost 50% from all-time highs. The stock is down due to a multitude of, what we believe, are short-term issues, including volatility in wholesale inventory/shipments, a 61% build in inventory y/y, exposure to unrest in Hong Kong, the China Coronavirus, and recent selling by Bain Capital at the stock’s recent peak. While these issues have put pressure on the stock, we believe virtually all the issues are transitory, known, and fixable over time. In our view, these short-term pressures have created an excellent entry point, given the vast white space opportunities and growing global demand that is nascent in its lifecycle.
The Real McCoy
The global parka movement was essentially created by Canada Goose, with its signature fur trimmed hooded jackets. On the back of these famous parkas, Canada Goose has launched itself from a regional Canadian brand to a global leader in luxury outerwear. This is a brand with a long lineage of producing some of the highest quality outerwear across the globe, and that sense of quality is synonymous with its brand extensions into other categories such as apparel, light outerwear, and eventually, footwear.
While the Canada Goose brand is quite familiar in cold weather climates within North America, the brand is still in its infancy in other parts of the U.S. and even more so globally. For instance, the brand started its direct-to-consumer push just over 5 years ago and only recently opened its first two physical stores in Toronto and New York City in 2016. Canada Goose is unique in that, while it has global brand recognition, it is only one third the size of its closest competitor, Moncler. Globally, there are only 20 physical stores and sales are still below CAD $1bn. Given the vast whitespace, we think there is 25%+ sales growth with 30%+ EPS growth for the next 3-5 years and double-digit EPS growth for at least the next decade is feasible.
The distribution network and manufacturing capabilities have been built out over the past few years to satiate strong product demand. Consumer demand has historically outweighed the amount of product Canada Goose can manufacture in Canada. While it is a good problem to have, CG management has had to invest a significant portion of free cash flow back into the business to continue this growth trajectory. Over the past two and a half years, the team has built 4 manufacturing facilities (8 total facilities within Canada). Furthermore, a recent acquisition of Baffin (shoe manufacturer) in November of 2018 was a natural brand expansion into a new category that we think is relevant to Canada Goose customers. Capital spending has been extremely high, given all the recent fixed cost investments to keep up with top-line growth, which has doubled approximately every 2 years. Capital spending in FY 2019 as a percentage of sales was 8.2% (versus peers ~4%) and, given the planned C$75mn (7.5% of sales) investment in FY 2020, capital spending should start normalizing further with more free cash flow generation being used on the recently initiated stock buyback.
It is clear that the Canada Goose brand resonates well with consumers as a global luxury outerwear brand; however, the market still does not value it as such. If one factors in CG’s growth rates relative to peers, Canada Goose trades at a steep discount to almost all luxury peers and a steep discount to its closest competitor, Moncler. We believe much of the disconnect is from the consensus perception of the brand within North America-- most of which we think is misplaced when taking into consideration three quarters of the incremental growth is coming from outside North America. Below are a few viewpoints we’ve heard over the past few months after speaking with investors in the space.
Consensus View
Canada Goose is a saturated brand that is starting to experience brand fatigue.
North America is a fully penetrated market with limited growth opportunities outside of the traditional cold weather markets.
A parka retailer like Canada Goose sells a commodity product that is exposed to malls and physical store-based traffic trends.
The high multiple more than reflects any future growth and/or margin expansion priced into the stock.
This is another recent IPO that is overpriced and overhyped.
China geopolitical issues and the never-ending trade war will directly impact Canada Goose.
Concerns around demand and product/sales being pulled forward from distributors.
The Hong Kong protest situation will impact the brand longer than expected.
The Coronavirus impacting demand in China.
The Chinese boycott and political issues with regard to Huawei could permanently impair the brand in China.
Variant View
Canada Goose is the original innovator in winter apparel fashion and functionality and has significant pricing power.
Transition to a direct-to-consumer focus from wholesale will continue to help margins expand going forward.
The direct-to-consumer transition from wholesale has rapidly accelerated fixed cost leverage with gross margins expanding ~ 2,200 basis point in 5 years.
The consensus growth profile for Canada Goose is highly conservative given Asia/China expansion, brand extensions, and coming footwear line (Baffin acquisition).
Canada Goose is one of the few global luxury brands in its infancy that has had consistent top-line growth along with consistent margin expansion.
A Unique Customer Engagement Experience
Canada Goose has a unique approach to its retail presence, with most stores offering some sort of cold weather experience to showcase the brand’s various products. Its most recent opening in Toronto took it a step further by offering no for-sale inventory; the store is comprised of an entire buyer experience built around a snow storm, a cold room, and a crevasse traverse room. Canada Goose’s strategy for their stores is more about brand building and experiences than the traditional retail model. The end goal is to drive customers to its online platform, which has the highest operating margins. Additionally, the unique retail approach gets customers excited about the brand and compels them to share their experiences on social media.
Stock Weakness
The stock is down for a multitude of reasons-- from PETA outcry over the use of coyote fur on the hoods, to concerns over the volatility of seasonal inventory builds, as well as Hong Kong unrest. At one point, Canada Goose was at the center of an international controversy where it was put in the spotlight after the CEO of Huawei, Meng Wanzhou’s arrest. Meng’s arrest in Vancouver caused the Chinese to target any global Canadian brands, and by the circumstances of its name, Canada Goose was a target. During this political entanglement, Canada Goose’s stock cratered 17% and at that time valuation was extended and trading at over 12x EV/sales, and almost 70x LTM EV/EBITDA. Moreover, at roughly the peak share price, Bain Capital and Dani Reiss initiated two large secondary offerings. In less than six months, over 51% of the float was dumped onto the open market and over 18% of the fully diluted shares, putting tremendous pressure on the stock following this supply shift.
06/22/2018: 10,000,000 shares offer by Bain, Dani Reiss, and John Black at $62.42 per share. Bain sold 8.4mn shares, Dani Reiss sold 1.5mn shares, and John Black sold 100,000 shares.
11/28/2018 10,000,000 shares offered by both Bain and Dani at $64.52 per share. Bain sold 8.49mn shares, Dani Reiss sold 1.5mn, and Jean-Marc Huet sold 10,000 shares.
On the most recent conference call, concerns regarding Hong Kong created yet more uncertainty of the protests, potentially impacting sales and store traffic at its 2 flagship locations. Furthermore, there are some labor cost headwinds with minimum wage increases (Now C $14/hr) in Ontario, Canada, partially mitigated by having over 1,350+/2,000 manufacturing laborers in Manitoba (C $11.35/hr) and Quebec (C $12/hr). In addition to all these concerns, management is remaining elusive with regards to giving more short-term transparency the sell-side desires. Canada Goose CEO, Dani Reiss, is focused on the long-term vision of the company, which can, at times, lead to frustration from investors and the sell-side; but he remains a focused owner operator with a 5+ year vision for the company. This is further exemplified by the way Dani has handled the acquisition of Baffin shoes and the almost constant bombardment of sell-side questions on the timing of an upcoming Canada Goose shoe line. While there are certainly some transitory issues, we feel the company is better positioned as a global brand than it was at the time of its IPO, yet the stock is trading at its cheapest multiple since coming public on a PEG, EV/sales, and forward P/E basis. The market at these levels is pricing some of these concerns as permanent events-- something we think is unlikely.
Throttling Demand While Shifting from Wholesale to DTC
Management has a mid-term target of throttling wholesale distribution to a growth rate of no more than high-single-digits. The real crux of the bull thesis is that margins will hold up and expand further as DTC transitions to become a larger portion of the revenue mix. Early on the wholesale channel was the backbone of the company, management realized the importance of a direct-to-consumer approach whereby management would have more control over inventory and sales. This strategy mimics some of the vertical integration at both Moncler and Lululemon, where direct-to-consumer makes up over 77% share of the business at Moncler and a large share of the business at Lululemon. Canada Goose’s rapid rise in DTC has been unprecedented with regards to execution, from 2015 at minimal levels of DTC business, to having more than half the sales derived from the high margin DTC business.
“We plan our direct-to-consumer and wholesale business well, and we are not afraid to be sold out. If somebody can’t find the product they want in a certain year they’ll come back for it next year, our products are special, they are not commodities” --Dani Reiss, CNBC
“The allocation model privileges our in-stores first and then e-commerce. And then we consider the replenishment of wholesale orders, only when it makes sense to do so.” --Johnathan Sinclair. Q2 2020 CC
Abundant Future White Space Opportunities
At roughly one-third the size of Moncler in terms of sales, there are tremendous global white space opportunities for this well-respected 60-year-old family-run business that has primarily been relegated to North America. While Canada Goose still derives most of its sales from Canada (> 35%), three quarters of the incremental growth is coming from outside North America. To put this into perspective, Canada represents over 35% of Canada Goose sales yet represents only 2% of the global luxury market. Furthermore, the physical store penetration is still relatively nascent, since Canada Goose only has 20 global flagship locations and two stores in Europe and five stores in the United States.
Though arguments have been made that Canada Goose products are only relevant for cold weather climates, we think that Canada Goose has done an excellent job at expanding into adjacent categories in light outerwear, raincoats, apparel, sweaters, hybrid knits, and accessories. With its strong global brand power, we think Canada Goose can continue to use product extensions to expand its addressable market throughout various geographies, especially in China. In 2020, of the five planned international stores, three flagship stores are planned for China. China remains a vastly underpenetrated market despite the brand recognition there.
China remains the dominant market for luxury good spending globally and the only large market to grow year-over-year, but it has represented only a fraction of Canada Goose’s total sales. While Asian consumers tend to have an affinity to the brand, the first physical mainland China store was the Beijing flagship store, which opened less than thirteen months ago. Even though China only represents a fraction of sales, we predict that as the brand matures, future Chinese sales could represent over 40% of the company’s total sales-- similar to that of other large European luxury brands.
Luxury Outerwear Duopoly
In 2003, Moncler was taken over by Italian entrepreneur Remo Ruffini, who introduced Moncler as a global outerwear brand. When Moncler IPOed on the Milan Stock Exchange in December of 2013, it was 27 times oversubscribed and rose 47% on the first trading day. Today, there are only two global luxury brands that primarily sell functional and fashionable outerwear-- Canada Goose and Moncler. Originally parka and coat specialists, both Moncler and Canada Goose have begun brand extensions beyond those niche categories by utilizing their strong brand-power to move into adjacent categories. While Moncler price points are slightly higher on average, Canada Goose has also come out with a higher priced line of outerwear called BRANTA and has had various higher priced seasonal collaborations with worldwide designers, which typically sell-out in the first few days. Though Moncler and Canada Goose sell very similar items, individually, they have vastly different strategies. Moncler has been on an aggressive global store expansion with 205 current stores, whereas Canada Goose has a global store base of only 20.
Moncler’s product strategy is also quite different in that it produces a substantial amount of new designs every season in limited quantities and also uses independent designers under its Genius product line to continue to refresh the brand every year. Conversely, Canada Goose’s core products are more timeless in its design, with the signature parka remaining essentially the same design since its inception decades ago. Canada Goose also does some modest innovations, with its aforementioned collaborations and BRANTA line of clothing, though not nearly to the extent of Moncler. Another difference in strategy is Moncler typically makes small quantities of different designs and allows them to sell-out or eventually be marked down; Canada Goose makes higher quantity batches in the hopes of utilizing its distribution network to fill in pockets of demand. In our view Moncler has more fashion risk on an annual basis, whereas Canada Goose has risk in its higher inventories of certain lines of outerwear, potentially risking inventory markdowns. This inventory markdown risk is partially mitigated by controlling the wholesale channel inventory levels as well as the potential to reposition inventory globally for demand pattern changes. Finally, Canada Goose still has not ventured into the discount outlet channel like Moncler, which has recently started opening up outlet centers to liquidate unwanted product at up to 50% off. Eventually Canada Goose will need to go to the outlet route, but for now, demand is so high that it can continue selling out products at full price.
“With core products, the degree of risk around obsolescence or non-saleability is minimised (with CG) as opposed to a company, and I’ll have to use the word Moncler, that makes new products almost every season, where you are risking the consumer not liking what you do, and how do you get rid of it, and so on and so forth. To me, the whole word around inventory and inventory management is critical.” -Paul Silvertown
Canada Goose may have taken some pointers from Moncler on its direct-to-consumer business, but some of its true innovation lies in its retail-light business model. This model was exemplified with Canada Goose’s recent opening of its Toronto flagship store. Throughout the store, a customer can purchase a Canada Goose jacket through online shopping kiosks and can have the purchase delivered by the end of the day. The intent of giving customers a retail experience they can talk about and share on social media is to produce its own organic marketing as well as reinforce the brand quality and trust. The genius of the approach is driving customers to its highest margin channel-- ecommerce. Early on, Canada Goose focused on driving its younger customer base to its online channel. Based on conversations and data compiled from various sources, we estimate that Canada Goose has 20%+ online sales, compared to Moncler at around 10%.
The last difference in strategy we’ve noted is where the products are manufactured. Canada Goose has remained committed to manufacturing core products in Canada to focus on quality control and maintain ability to manage the product inputs in the manufacturing process. For their knitwear sector, Canada Goose does outsource to Italy. Moncler’s manufacturing strategy, which is to lower costs, produces their products in cheaper eastern European countries such as Bulgaria, Moldova, Hungary, and the former Soviet Republic of Georgia. While this helps to boost margins even further, we think it hurts the French and Italian heritage of the brand.
A mild winter has raised new concerns, with John Morris at DA Davidson recently sending out a note notifying clients about discounted Canada Goose products in the wholesale channel. Based on our checks we disagree and tend to side more with Omar Saad of Evercore ISI who commented that, “There is no meaningful discounting on the ground.” Our recent checks actually indicate significantly more Moncler items being discounted, especially online. On the Neiman Marcus website, we found 38 Moncler designs on sale, with most discounted 50% off the MSRP. Of the Canada Goose products that came up on a sales search, there were only two items on sale-- both were scarfs and one was completely sold out. On the Saks Fifth Avenue website, we found 35 Moncler designs on sale and zero Canada Goose products on sale. Bergdorf Goodman had four Moncler designs on sale and zero Canada Goose sales. Finally, Bloomingdales had zero products on sale for both Moncler and Canada Goose. A quick search online at Nordstrom, and six Moncler designs came up with the majority at a 40% markdown; a search for Canada Goose sales revealed no items marked down. We also tried to load Canada Goose items into various shopping carts and use coupon code metasearch functions for discounts, but we had no success in lowering the MSRP.
While it’s tough to get a full handle on the wholesale channel with both online and brick-and-mortar sales, we think that Canada Goose’s online channel is an excellent indication of overall inventory and sales, especially now that management is prioritizing the DTC channel over the wholesale channel. Selling out of inventory on CG’s online channel should indicate very light inventory or complete sell throughs at the wholesale level in various designs. For instance, we went through all of the men’s outerwear, which included over 125 designs on Canada Goose’s website; of the various size and color combinations, we noted 725 fully sold out. Canada Goose women’s collection appeared to be even more popular with only around 110 designs in outerwear, in total 879 color and size options were fully sold out. This does not include designs that completely sold out in every size, but we think it gives a good approximation of the demand in the most prioritized channel. One caveat is the data doesn’t fully reflect less common sizes such as XXXL and XS, which are made in much smaller quantities.
We conducted the same analysis on Moncler’s website; of the 150 men’s designs only 421 color and size combinations were sold out for all men’s outerwear. For Moncler women’s outerwear, there were over 165 designs available online, with only 333 color and size combinations sold out. What’s remarkable about this is that Moncler has always had more designs with a shallower level of inventory because of the constant refresh the brand does almost every season. Though there is no indication of how many items were pulled due to being fully sold out in all colors and sizes, there were a few categories that remained on the site as “out of stock”. Another consideration is that Moncler has a much larger retail footprint than Canada Goose, and carries certain designs in its boutiques only-- so the comparisons are fairly accurate but not entirely apples-to-apples.
Moncler is more established than Canada Goose at almost three times the sales, however it has been growing at about half the rate of Canada Goose, all while sporting a significantly higher multiple. Additionally, there has been a recent takeout premium built into the price of Moncler based on Kerings potential interest. Even then we still believe that Canada Goose should trade at a decent premium to Moncler given its underpenetrated markets, nascent product extensions, and burgeoning brand awareness in both Europe and Asia.
Since coming public, Canada Goose has always traded at a significant premium to Moncler on both a EV/sales and forward P/E. Canada Goose’s multiple has compressed over the past 12 months, while Moncler’s EV/sales and forward P/E ratio have expanded in the past 12 months. The most glaring divergence is in Canada Goose’s PEG ratio vs. Moncler; in the past 12 months, it was roughly at parity, and now Moncler is trading at almost a 3 turn premium to Canada Goose. The huge differential in the PEG is unwarranted, even if one considers below consensus topline growth for Canada Goose.
Relative Value Comps
Global luxury retailers have always traded at premium multiples to the market, with their higher profit margins and duration of brand power. It also has been one of the few bright spots in retail with consistent growth and on average expanding margins. At the opposite end of the spectrum, the more commoditized fashion brands typically use aggressive discounting to generate store traffic and sales volume and typically don’t have the sustainable growth of the luxury peers. In the cohort of global luxury retailers we have included some of the top brands in their individual categories that we think are representative of the quality and brand power of Canada Goose. To our surprise, Canada Goose appears as one of the cheapest stocks among global luxury peers. The gap among peers is quite compelling, and clearly the market at this price is saying the growth rates will start normalizing at substantially lower rates than consensus estimates.
Risks
--Bain Capital and Dani Reiss initiate a sale of the business to a luxury conglomerate off a depressed multiple.
--PETA concerns around the use of animal furs for the hoods of Canada Goose’s signature parkas; based on industry conversations, it appears likely that Canada Goose will eventually eliminate coyote fur from the hoods.
--A high end discretionary product can be susceptible to economic cycles; the brand grew rapidly throughout the ‘08/’09 GFC, but given its global footprint, no assurances can be made that Canada Goose will be able to keep its growth trajectory.
--Continued geo-political issues and a renewed interest in a Chinese boycott of Canada Goose products.
--Continued counterfeits that degrade the brand value over time.
--A super-majority voting structure controlled by Bain Capital and Dani Reiss.
Summary
In May 2019, management initiated its first ever stock buyback, a 1.6 million share buyback amounting to about 1.5% of the fully diluted shares outstanding. It’s rare to see a high growth/high ROE company spending money to buy stock, but we think the buyback sends a clear signal that the stock price is compellingly cheap at these levels-- especially now, off almost 55% from its late 2018 peak. Multiple upcoming catalysts drive future growth, including a further expansion into China, an upcoming brand extension into shoes, and continued diversification into apparel and light jackets. Since coming public, the stock and sales have doubled; however, the underlying operating profits have gone up five-fold. Fixed cost leverage has become more apparent as the business continues to scale and shift from the lower margin wholesale business to the direct-to-consumer (DTC) channel, which has a gross margin uplift of ~ 3,000 basis points. It’s uncommon to find a business growing top-line at a 40% CAGR in tandem with expanding margins (GM +2,200 bps; 5 years), trading at a discount to luxury peers, while stock is off almost 55% from all-time highs. At just over 20x forward earnings and likely growing EPS at a 30%+ CAGR, we think the combination is quite compelling in today’s market for a global luxury retailer in its infancy.
Catalyst
--Sale of business to luxury conglomerate, Moncler currently being solicited.
--Successful brand extensions into accessories, shoes, and apparel.
--China success with new stores in 2020.
--Continued higher than expected topline and EPS growth.
--Further expansion of the higher margin DTC business taking more share from wholesale.
I and/or others I advise do not hold a material investment in the issuer's securities.
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All comments and likes are very appreciated.
Best Regards,
I0_USD_of_Warren_Buffet
WTI Relative value to G4 currencies: aka Krümels Voodoo chart .
So this is an attempt to show my "Relative Value" chart, and why currency spreads can help both identify max/min ranges, and when WTI couples with other G4 currency.
Question /Scenario:
You own an oil company. You store, buy & sell locally. You have locations in all major countries. You buy in any (G4) currency, but mostly in the currency of the actual sale country. You do not transport, except locally. At the EOD (hour, sec) you need a single number that represents the value in US. Dollar of " ALL " your inventory. What amount is that? What is that value in dollars? Understand that matrix and you understand my Relative Values..
So the basic premise is Dollar is base. Oil is priced in dollars. BUT its value to Dxy changes. If no WTI was bought or sold for two hours.. but Dollar traded and moved.. so would the price of oil. Not tic for tic.. ( remember oil not trading in example ) but when oil did open to trade it would balance to DXY (assuming no other currencies in this pretend market). That spread is the base measurement .
Unfortunately it is not as simple as Dollar moves up so oil moves down (or up). Oil is priced and sold in other currencies around the world. So (for example) 100 barrels trade in 70% USD, 30% ERU.. then it would stand to reason that the Value of oil is somewhere Between those two values, but closer to US dollar (in this example).
This happens all day long.. but because we have multiple currencies, those spreads are all different. I use the main currencies listed Eur, Dxy, yen, pound. (G4 ).
*Read*. Most important.. (where most people have a problem) is oil has it's own fate. . that is to say if some big whale dumps oil, it will move down on that.. and that will not couple with any spread. That is a true value change of oil, and spreads need to be realigned/ calibrated.
The problem is TV only gives you (2) two scales. (Left & Right) If the left is raw Dxy no equations, right is raw WTI no equations.. the 2nd, 3rd, etc.. currencies will be off screen. So you must normalize them to fit left scale.
I have screwed with this normalization the most. You can't just say x=2, y=10, so I'll just take -8 from y to balance both at 2. Because you removed 80% of Y. The Y wave needs to scale with DXY(over 60min). Dxy down=Pound up (for example) you'll know you have it right when you can align the symmetric
Lastly it is a work in progress.. (over 1yr) and I still don't have all answers but it is much better than when I started.
Ok... preamble done. Let's add a currency. We will start with Pound for example. (Just because today that is the couple).
Oil right -DXY left , no equations. Scaled.
Add Pound - normalized
Add Yen - normalized
Add EUR- normalized
Add S&P - normalized* (more on S&P next note)
ALL currencies – normalized
All - normalized, scaled, and tweaked.. (aka the Tea Leaves )
More on next post... Good Luck!
*note & question. If I over explain, if I'm over simple in the steps I use, I use a wrong term, and/or it seems elementary , I apologize. I get A lot of questions.. not everyone is at same level, (most are above me..lol). Also because this is not a system used by many (any?) there is no web page description or known indicator like RSI, Fibs, or MACD to point too.
NZDJPY - Long - Missed TradeShort term market sentiment can often drive the currency pair to a price level that does not make senses fundamentally. As my failed JPY trade unwinded in the morning, I've been too occupied with the NZDCAD play and totally disregarded the mean reversal aspect of FX as rate stray too far from general equilibrium.
My observation: the overcrowded JPY trade should leave the JPY weaken against all the other pairs and yet in the 2 hours after the gap down in JPY, one partcular pair defines the fundmental and that is NZDJPY. This is where being a contrarian perfectly helps, the UK and US traders have yet to be able to unwind all of their Long JPY since weekend thus there is a very likely chance it will drift the whole day and the strong bounce from NZD is odd as there is no major news for it this week.
This is a trade I only realize after observing the relative moment across all the crosses singled out by 1 currency at a time. As of this writing I'm seeing all the NZD and JPY agree strongly, short JPY and long NZD, fundamentally short JPY make sense but I'm reluctant to go along with long NZD thus I consider this a Neutral. If you want to have an expensive currency to bet against JPY, perhaps CAD is a better choice.
Relative Value TradeShort Russsell2000 Index Futures and Long SP500 Futures in search of convergence in valuation, due to worse performance of small caps relative to big caps in environment with increasing interest rates.
GBPUSD: THE RUN DOWN & HOW TO TRADE - FOMC & UK EU REFERENDUM 1This article is a tradable summary of all of the indepth GBP$ analysis i have done recently - I aim to give you a conclusive opinion and trading plan. SEE PART 2 ALSO
I suggest you check out ALL of the relevant articles that i attach to this post so that this post makes sense
In a nutshell i am heavily short GU, about 8-9/10 @1.44/5 (@1.41 only 2/10) - so i advise shorting ANY pullbacks we get to >1.44 in the coming weeks.
- Also SHORT EU is a good trade as IMO it is heavily over brought, and hasnt priced any of the fundamental supply/demand stimulus ( e.g. EU is trading at levels higher since the dec 15th hike, March ECB cut and UK EU Ref uncertainty pricing) which all should have depressed the market lower. Thus short EU might be the better play if we dont get any GU pullbacks, since EU still has alot of downside to factor in imo.
Volatility
- The best indicator for dis-ciphering what the market has in store for GU and EU imo is implied volatility, since it uses options (actual demand/ supply of the market) to predict what the volatility will be in the future.
- Currently EU and GU on Friday both traded in their 2 year 99th and 100th percentile implied vol reading at 14.78% and 16.15 respectively.
- Furthermore, GU's IV has been trading higher everyday this week and has set new 52wk highs everyday. The volatility (time horizon) curve is severely fattened/ steepened around the next 2 weeks due to the up coming e.g.
23.55% 16.5% 16.15% 13.75% 10.25%
1m fwd 1wk fwd current 1wk ago 1m ago
- Hence, and as you can see, now (or last week or the week before that) is the time to get on the curve for GU downside since volatility has been rising and is projected, to rise into the FOMC and UK EU Ref - before tailing off quite considerably (3m fwd at 16%, 6m fwd at 13.25%).
- In addition to this we are seeing Historical Vol trade relatively flat - indicating that GU price action hasn't yet fully priced in the potential future event volatility, meaning we can expect large legs downwards in the future, since HV isnt at extremely high levels (as pictured), there is certainly room for price action vol to move higher, thus there is room for GU to trade heavily bid and shed a several more 100pips.
- Further we have seen a negative shift in Risk Reversals for GU and EU - GU the most extreme now with 1wks at -1 and 1m at -7.6 (EU -0.1 and -0.45). Risk Revs (RR) look at the Supply/Demand of OTM Call/Put options and RR is the difference between the vol of calls minus puts.. GU RR is currently growingly negative at -1 and -7.6, implying that puts are trading much more expensive than calls as their demand is higher.
GU puts are more expensive as investors over the next 1wk-1m period are increasingly demanding downside GU exposure or want to hedge their underlying length MORE than they want upside call exposure. From this skewed options market demand for puts (rather than calls) we can observe that GU downside is net what the market is positioning for, and therefore, GU downside/ short is ALSO what we should consider playing in the spot market.
Increasing volatility and decreasing RR supports SHORT positions as; 1. investors dont want to hold assets that have increased vols (it is seen as increased uncertainty and risk) and 2. investors are increasingly purchasing put options which at some level DOES represent investor sentiment in the spot market also - these are why i advise getting short if you haven't already, asap for GU to play the volatility.