The low-end textiles business is one which is hard to gauge, in my opinion. I've shifted my view on this sector, in general, based on higher than expected volatility during this recent market panic.
Thus I have moved Gildan Activewear (TSX:GIL) further down on my watch list. That said, I do think Gildan deserves a spot-on Canadian investors’ lineup of stocks to be followed. In this article I'll explain why.
Gildan is a company that has acted, historically, as a proxy play on the commodity price of cotton. In the past, buying Gildan stock when cotton prices were low and selling when cotton prices shot through the roof provided for a high probability of a decent trade one could profit from playing commodity prices through Gildan stock. I believe this trade may not be as simple may not be as simple moving forward due to a few key issues in the space.
Competition in the "rag" sector has ramped up and has put pressure on margins which have historically not been great. This is a volume business.
Scrapping it out for market share at a time like this is an unprofitable endeavour. Sector specific risks related to lower than anticipated volume in the future is real.
Affordable fashion has infiltrated the rag space, with a number of high-end brands offering discount labels and attempting to grow in this niche. I'd expect to see such headwinds intensify over time, meaning further downside for Gildan could be on the horizon.
Invest wisely, my friends.
