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david milstead

The future is unknowable, which is a problem in investing. It's a particularly thorny task when a stock is brand-new and its future sales depend on a significant expansion of the company's sales to new markets, and the extension of its brand to a growing list of products.

Yes, we're talking about Canada Goose Holdings Inc., which debuted spectacularly this week on Canadian and U.S. markets, suggesting investors are not terribly worried about these known unknowns. Originally to be priced at $14 to $16 then marked up to $17, the shares closed Friday at $23. That gives the company a valuation of nearly $2.5-billion, which is 35 times the company's trailing EBITDA, or earnings before interest, taxes, depreciation and amortization, and nearly 70 times its net income for the prior 12 months.

Multiples like that are not uncommon for a hot new stock, certainly. What is interesting, however, is just how cheap this company was not so long ago. Securities documents show Canada Goose sold itself to the company's management and its partner, Bain Capital for just $209-million in December 2013. The last three years have been very good for Canada Goose – but investors should question whether the company truly has increased twelvefold in value in just three years, and whether the best returns to Canada Goose shareholders are already in the books.

Now, to be fair: If you avoid stocks where someone else has already made more money than you, you might not ever find anything to buy. And early investors and insiders in IPO companies will nearly always make out better than you, the ordinary investor. When these stocks come to market, it's often at a tidy profit for the selling shareholders.

The gains on Canada Goose for Bain and CEO Dani Reiss, grandson of the company's founder, are rather remarkable. And they require an even closer look at the recent growth trajectory, future business plan, and whether the latter can support a continuation of the former.

Here's Canada Goose's case: From fiscal 2014 to fiscal 2016, representing the Bain period, revenue grew at a compound annual growth rate of 38.3 per cent; net income at a rate of 196 per cent; and "adjusted EBITDA," which excludes a number of normal expenses, at an 85-per-cent rate. The company's gross margin, the difference between sales and the cost of its goods, expanded from 38.6 per cent to 50.1 per cent.

And, during the year ended March 31, 2016, Canada Goose posted more sales in the United States than in Canada for the first time, $103.4-million to $95.2-million. Sales in the United States grew at a 75-per-cent annual clip over the two years.

Canada Goose may have had the good luck to go public during a New York City snowstorm this week, but it's even more fortuitous to be able to show off shiny numbers like that. The question is: How long will that last? Can those numbers accelerate? If they decelerate, by how much?

The Canada Goose plan is to sell more of its coats to more people outside Canada. The company says in its prospectus that a survey it commissioned last August found "the vast majority of consumers outside of Canada are not aware of Canada Goose" and it will try to change that through both "the organic word-of-mouth brand building that has driven much of our success to date" and more traditional channels.

If the company can sell nearly $100-million worth of winter clothing in Canada, then the opportunity in the United States could be 10 times the size, even if a big chunk of the country rarely sees snow. (Really: If a parka costs $900, because of brand cachet some clown in Miami Beach is going to buy it.)

As well, the company needs to not only "elevate winter," as it says, but expand into wear for more temperate seasons, and even extend the brand to other clothing items. Those customer surveys also told Canada Goose people are looking for it to make products in "knitwear, fleece, footwear, travel gear and bedding."

Will that work? Hell if I know – my primary winterwear is a Britches coat, bought at a Jack Fraser in Saskatoon, that has an interior pocket for a flip cellphone. You're not here for my fashion advice. But perhaps I know bargains. Bain and Mr. Reiss got one in 2013. You probably aren't, if you're buying right now.