Consumer discretionary businesses are levered to the highs and lows of economic cycles. Over the past six months, it seems like demand trends are working against their favor as the industry has tumbled by 11.4%. This performance was worse than the S&P 500’s 5.8% loss.
While some companies have durable competitive advantages that enable them to grow consistently, the odds aren’t great for the ones we’re analyzing today. With that said, here are three consumer stocks best left ignored.
Sonos (SONO)
Market Cap: $1.17 billion
A pioneer in connected home audio systems, Sonos (NASDAQ: SONO) offers a range of premium wireless speakers and sound systems.
Why Do We Think SONO Will Underperform?
- Annual sales declines of 6.3% for the past two years show its products and services struggled to connect with the market
- Suboptimal cost structure is highlighted by its history of operating losses
- Negative returns on capital show that some of its growth strategies have backfired
Sonos is trading at $9.51 per share, or 47.6x forward P/E. Check out our free in-depth research report to learn more about why SONO doesn’t pass our bar.
Leggett & Platt (LEG)
Market Cap: $1.25 billion
Founded in 1883, Leggett & Platt (NYSE: LEG) is a diversified manufacturer of products and components for various industries.
Why Are We Out on LEG?
- Products and services aren't resonating with the market as its revenue declined by 1.5% annually over the last five years
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 14.4% annually, worse than its revenue
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Leggett & Platt’s stock price of $9.22 implies a valuation ratio of 8.5x forward P/E. Dive into our free research report to see why there are better opportunities than LEG.
The Real Brokerage (REAX)
Market Cap: $886.8 million
Founded in Toronto, Canada in 2014, The Real Brokerage (NASDAQ: REAX) is a technology-driven real estate brokerage firm combining a tech-centric model with an agent-centric philosophy.
Why Does REAX Worry Us?
- Poor expense management has led to operating losses
- Earnings per share fell by 9% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Poor free cash flow margin of 3.3% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
At $4.34 per share, The Real Brokerage trades at 16.7x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including REAX in your portfolio.
Stocks We Like More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.
