European Wax Center has gotten torched over the last six months - since June 2024, its stock price has dropped 48.2% to $5.34 per share. This might have investors contemplating their next move.
Is now the time to buy European Wax Center, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.Even with the cheaper entry price, we're swiping left on European Wax Center for now. Here are three reasons why EWCZ doesn't excite us and a stock we'd rather own.
Why Do We Think European Wax Center Will Underperform?
Founded by two siblings, European Wax Center (NASDAQ: EWCZ) is a beauty and waxing salon chain specializing in professional wax services and skincare products.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, European Wax Center grew its sales at a sluggish 6.7% compounded annual growth rate. This was below our standard for the consumer discretionary sector. 
2. Same-Store Sales Falling Behind Peers
We can better understand Leisure Facilities companies by analyzing their same-store sales. This metric measures the change in sales at brick-and-mortar locations that have existed for at least a year, giving visibility into European Wax Center’s underlying demand characteristics.
Over the last two years, European Wax Center’s same-store sales averaged 2.3% year-on-year growth. This performance was underwhelming and suggests it might have to change its strategy or pricing, which can disrupt operations. 
3. Previous Growth Initiatives Haven’t Paid Off Yet
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
European Wax Center historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.9%, lower than the typical cost of capital (how much it costs to raise money) for consumer discretionary companies.
Final Judgment
European Wax Center falls short of our quality standards. Following the recent decline, the stock trades at 15.8× forward price-to-earnings (or $5.34 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are better stocks to buy right now. We’d suggest looking at FTAI Aviation, an aerospace company benefiting from Boeing and Airbus’s struggles.
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