Stock Talk Podcast Episode 291 Show Notes

You are listening to KeyStone’s Stock Talk Show – Episode 291

Great to chat with you again this week. We are back from a busy and interesting week in California at the annual Roth Conference. In our YSOT segment, I will begin with a viewer question on Neo Performance Materials Inc. (NEO:TSX), is an innovator and manufacturer of rare earth- and rare metal-based functional materials including magnetic powders, rare earth magnets, magnetic assemblies, specialty chemicals, metals, and alloys. In a tough environment, the company reported Q4 numbers that beat estimates, driving its stock 16% higher in 2025 – I will let you know if it can continue. Brennan answers a viewer question on Canada Goose Holdings (GOOS:TSX), the Canadian iconic designer, manufacturer, and retailer performance luxury apparel for men, women, youth, children, and babies in Canada, the United States, Greater China, rest of the Asia Pacific, Europe, the Middle East, and Africa. Famous for its goose down Parka’s, the stock has failed to truly take flight, and is now trading below its 2017 IPO price – Brennan will let you know if it is an opportunity. To close our the show, Brett, reviews, Algoma Steel Group ASTL:TSX|NASDAQ which produces and sells steel products primarily in North America. In an uncertain trade war environment, the stock is down 35% year-to-date. Brett, let’s you know whether the drop is an opportunity or a sign of things to come.

Let’s get to the show –my cohost, Mr. Aaron Dunn is traveling through Italy (lucky him), but fortunately I have the killer B’s, Brett and Brennan here to rescue the show.

Keep your questions – YSOT’s coming in – we give away a mug – someone is getting mugged next week. 

YSOT Neo Performance Materials Inc. (NEO:TSX) – Viewer Request

Headquartered in Toronto, Ontario, Neo is an innovator and manufacturer of rare earth- and rare metal-based functional materials including magnetic powders, rare earth magnets, magnetic assemblies, specialty chemicals, metals, and alloys – are critical to the performance of many everyday products and emerging technologies which are essential inputs to high-technology, high-growth, and future facing industries. NEO operates globally through three segments: Magnequench, Chemicals & Oxides, and Rare Metals. Neo has a global platform that includes manufacturing facilities located in China, Germany, Canada, Estonia, Thailand and the United Kingdom, as well as one dedicated research and development centre in Singapore.

In a weak market, the stock is actually up 16% year-to-date after reporting Q4 numbers that beat the street estimates.

 – but shares remain in half from the $20 range it reached at its peak in 2021-2022.

Let’s take a quick look at the company’s Q4 and 2024 annual numbers released last week:

• Revenue for Q4 2024 was $134.9 million, compared to Q4 2023 revenue of $128.7 million. On a year-over-year basis, 2024 revenue was $475.8 million compared to $571.5 million in 2023.
• Operating income for Q4 2024 was $12.4 million, compared to Q4 2023 operating loss of $5.5 million. On a year-over-year basis, 2024 operating income was $35.3 million, compared to $11.2 million in 2023.
• Adjusted EBITDA for Q4 2024 was $20.7 million, compared to Q4 2023 of $3.1 million. On a year-over-year basis, 2024 Adjusted EBITDA was $64.4 million, compared to $37.2 million in 2023.

Balance Sheet

• Neo had $85.5 million in cash and $68.8 million in gross debt and $2.7 million in bank advances on its balance sheet as of December 31, 2024.
• Neo invested $80.2 million in capital expenditures for the year ended December 31, 2024, mainly comprised of $26.8 million for the construction of the Emissions Control Catalyst facility and $42.5 million for the construction of the new permanent magnet manufacturing facility in Europe.

Strategic Review

On June 14, 2024, Neo Performance announced that it formed a Special Committee of independent directors to lead a comprehensive strategic review process to consider opportunities to maximize shareholder value – the process, we may or not lead to a sale of the company, new direction or a sale of parts of the business, remains ongoing.

Neo continues to progress its previously announced Special Committee-led strategic review process, which includes the consideration of strategic alternatives and opportunities to maximize shareholder value. The Special Committee remains committed to advancing the strategic review process with Neo’s financial advisors.

Again the company announced and we note…there can be no assurance that the strategic review process will result in any transaction or other alternative, nor any assurance as to its outcome or timing.

Valuations

2024a EV/EBITDA: 3.5

2025e EV/EBITDA: 3.9

Conclusion

Interesting company – valuations appear intriguing – lack of consistent growth & profitability.

This is the company’s revenue and gross profit performance over the past 6 years – inconsistent growth and margin profile. Revenue high of $866 million in 2022, a low of $441 million in 2021, and today in the $684 million range with similar fluctuations in growth profit.

The annual and quarterly volatility leads to low multiples on the stock as it is very difficult to forecast quarterly numbers with any degree of certainty. ( this is why the stock receives low multiples and has lead to a strategic review.

Summarizing the Q4 results – Adj. EBITDA of $20.7 million exceeded the $11.0 million street consensus, driven by higher gross margins on hafnium inventory and Magnequench process efficiency. The strong Q4 result pushed full-year adj. EBITDA to $64.4 milliom, well above the $52-55 million guidance range. However, the Adj. EPS loss of ($0.12) missed the $0.06 consensus due to higher finance costs and income tax expense, with elevated tax rates expected to continue given the geographic mix of profitability. The continued earnings unpredictability remains a negative.

The stock trades at a discount to peers but the consensus is for both revenue and EBITDA to move slightly lower in 2025. It has potential as a takeover target, but we rarely buy on just that element and with numbers expected to be slightly lower for 2025 we monitor the stock at present.

YSOT Canada Goose Holdings (GOOS:TSX) – Viewer Request

Company Description

Canada Goose designs, manufactures, and sells performance luxury apparel for men, women, youth, children, and babies in Canada, the United States, Greater China, rest of the Asia Pacific, Europe, the Middle East, and Africa.

It offers parkas, lightweight down jackets, rainwear, windwear, apparel, fleece, footwear, and accessories for fall, winter, and spring seasons.

The company has 3 segments:

• Direct to Consumer – Includes sales to customers through direct retail stores and e-commerce.
• Wholesale – Selling to other retailers and international distributors.
• Other – Includes sales from the Paola Confectii Knitwear manufacturing business.

And as of December 29, 2024, the company had 74 owned stores.

Surprisingly to me, the company manufactures all of their products in Canada.

Canada Goose IPO’d in 2017 at a price of $17.00 per share, but despite revenue and EPS growth since this time, the stock is trading back down below its IPO price… And is down about 50% over the past 5 years and is down 80% from its high in 2022.

Now I came across these two Canada Goose ads over the weekend for the companies Rainwear and Light Outerwear, as the company is primarily known for its large down jackets. So I thought that it was interesting that the business is trying to market and become more known for its light wear products beyond its heavier parkas. On top of this, in 2021 the company launched its footwear product line – including both boots & shoes, and just in January of 2025 they launched their eyewear collection. So again, you can see the company is looking to increase product innovation to be less of a “one trick pony”.

And I want to show this extreme seasonality here by analyzing the Operating Margin of the business. So you can see that Q3 which runs from October-December is typically its strongest and its Q1 is significantly weak, consistently running a loss.

Now this is one thing that keeps us somewhat weary of Canada Goose, as if we look at a business like Aritzia for example, the company has seasonality, but it is far less extreme and the business continues to operate at a positive operating margin throughout the whole Fiscal Year.

Now looking at the most recent financial results which for Q3 2025, for the period ended December 29, 2024: 

• Revenue was $607.9m, a decrease of 0.3%, or on a constant currency basis, decreased by 2.2% reflecting the strengthening of the U.S. dollar and the Chinese yuan relative to the Canadian dollar in the current quarter.
    ➡ Same store sales in its Direct-to-consumer business decreased -6%
    ➡ Wholesale revenue was down 8% as the company plans to focus on premium end store locations.
• Management noted that the weak results show macroeconomic pressures affecting consumer sentiment in Noth America & EMEA, as well as slower than expected recovery in China.
• Gross margin was up to 74.4% in the quarter due to favourable pricing, lower inventory provisioning and higher proportion of DTC revenue. Meanwhile it was offset by continued execution of their outerwear strategy as their Down Jackets are typically higher margin… So keep this in mind as the company looks to diversify away from their down jackets. And this is a direct quote from the company’s MD&A – “As our product mix evolves, our gross margin has been and may continue to be unfavourably impacted by a lower proportion of down-filled outerwear sales, currently our highest margin products.”
• Net Income was $139.7M, an increase of 7% from $130.6M in the same period last year.
• And basic EPS was $1.44 per share, up 11% from $1.30, and was further benefited by the decrease in the number of shares outstanding.

Balance Sheet

Looking at the balance sheet, the company has $285.2M in cash, debt and leases were $831.1M, providing a net debt position of $546M or a trailing net debt to EBITDA multiple of 1.8x… BUT if we exclude the leases this would be closer to 0.7x.

FY 2025 Guidance

Looking at the company’s Fiscal 2025 guidance, management reiterated their Total revenue growth of low-single digit increase TO low-single digit decrease, but decreased their profitability guidance with Adj. EBIT margin being flat to down -1% and its adj. EPS growth to low-single digit increase to flat… with CFO citing increased marketing investments and revised DTC expectations as the contributing factors.

Trailing Valuations (Q3 2025)

On a valuation basis the company trades at about 16x trailing earnings, 5x trailing cash flow, and about 9x trailing EV/EBITDA…

And this compres to other retailers like Aritzia which trades with a trailing PE of 45x and Nike which trades at 22x…

So relatively speaking, Canada Goose is discounted, but it is not a surprise given their weaker results, reduction in guidance, and tariff concerns.

Conclusion

• Canada Goose is a well-known brand internationally but is quite seasonal due to its down-jackets which are its primary products.
• The company appears to be working to diversify away from its primary product of down jackets, introducing new product lines – which over time may hurt margins as down-jackets are higher margin.
• The company manufactures 100% of its products in Canada, so tariffs on Canadian goods would impact the business. And just to put it into perspective, in the last quarter, about 25% of their sales were in the U.S.
• Q3 2025 was weaker with same store sales down -6%, although EPS was up 11%.
• The balance sheet is healthy and the stock trades at a discount to retail peers but is expected given growth & Tariff concerns.

Personally, I would be a customer of Canada Goose’s products (IF I CAN AFFORD THEM) but would not look to invest in the business. It has a great brand name, but really, it just comes down to other names which are more attractive in the space and would prefer to own. Plus, I will add that their products are VERY expensive. And personally, If I was going to own a stock in the retail sector, I would not want to invest in a company which is selling such premium goods, especially in an uncertain macroeconomic environment.

YSOT Algoma Steel Group (ASTL:TSX|NASDAQ) – Viewer Request

Company Description:

Algoma Steel Group Inc. symbol ASTL on the TSX and NASDAQ produces and sells steel products primarily in North America. It provides flat/sheet steel products, including temper rolling, cold rolled, hot-rolled pickled and oiled products, floor plate, and cut-to-length products for the automotive industry, hollow structural product manufacturers, and the light manufacturing and transportation industries; and plate steel products that consist of rolled, hot-rolled, and heat-treated for use in the construction or manufacture of rail cars, buildings, bridges, off-highway equipment, storage tanks, ships, and military applications.

The stock is down 35% year-to-date trading a C$9.06 and a $950 million market cap. As well the company offers a 3.2% dividend yield.

Q4 2024 Results

A quick run through the latest financials. And just a note if you do look at the company they have shifted there fiscal year to match the normal calendar year.
But for Q4:

• Revenue fell 4% to $590 million.
• Operational loss of $124.8 million compared to $36.9 million
• Net loss of $66.5 million compared to $84.8 million.
• Adjusted EBITDA loss of $60.3 million compared to a loss of $1 million
• And despite the overall lower financial results, the company did have 6% higher shipments of 548.8k tons vs 516k tons

Balance Sheet

Algoma Steel was in our profitable cash-rich 2023 report, but the company is no longer cash-rich, due to significant investments I’ll get into in a minute. Algoma is now in a net debt position of C$390.5 million. This is still a moderately strong balance sheet for the significant investments made and they had previously been in a net debt position prior to the steel price boom in 2021. The concern would be if we see a prolonged weakness in the steel industry then the debt level could potentially become more concerning.

Electric Arc Furnaces (EAF)

The company has been investing significant funds into two state-of-the-art electric arc furnaces, with the first coming online in April of this year after years of construction. The arc furnaces have been part of the long-term strategy of the company. The second is targeted to come online later this year. With the steel production from the electric arc furnaces being weighted towards the latter half of the year.

The company expects to be processing all of its steel through electric arc furnaces by the end of 2026, so a big transitional period for the company. The cumulative investment for the Electric arc furnace project was $740 million.

Steel Prices

Steel prices have been weakening throughout 2024 and have recently slightly rebounded but still overall a weak pricing environment.

So let’s move to the elephant in the room, the reason for the decline in stock price, Steel Tariffs.

For the 9-month period – the fiscal year, 60% of shipments went to the US, so tariffs will directly impact the company as well as the company and the steel industry as a whole would be negatively impacted during a general economic downturn. At the time of recording the US has a global 25% tariff on steel, and it previously had announced an additional 25% against Canada but was quickly reversed.  General uncertainty impacts customer demand as well and businesses don’t want to commit significant CapEx when one day it might cost 50% more than the next month when the tariff-driven increase is removed. Uncertainty hurts demand.

The company has stated with its new electric furnace cost structure with a 25% tariff it would roughly be EBITDA break even. The company will see a cost reduction as the electric furnace comes online and the blast furnace and coke ovens are eventually decommissioned.

Canadian Plate Steel

Algoma steel is Canada’s only discrete plate producer. The company has stated they intend to switch some production of hot rolled coil to plate, which currently has more demand within Canada, which would avoid the direct tariff impact. Canadian Plate pricing was trading at a premium compared to hot-rolled steel in the last quarter. The company expects to production of plate to be at an annual run rate of 650,000 tons

Conclusion

Just to wrap this up, Algoma Steel highlights the crux of a commodity-based company. The company is on the precipice of having lower production costs with the electric furnaces the culmination of the long term strategy coming online. BUT the steel market has been weak and now tariffs are further impacting the company. Now the company is trading at a price which have a negative outlook on the company, so a contrarian investor might love this stock. Depending on how the dice roll with tariffs over the next few months the outlook of the company could significantly change, but for now we will continue to monitor the stock.