Even though European Wax Center (currently trading at $3.53 per share) has gained 7% over the last six months, it has lagged the S&P 500’s 23.2% return during that period. This may have investors wondering how to approach the situation.
Is now the time to buy European Wax Center, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free for active Edge members.
Why Is European Wax Center Not Exciting?
We're swiping left on European Wax Center for now. Here are three reasons you should be careful with EWCZ and a stock we'd rather own.
1. Flat Same-Store Sales Indicate Weak Demand
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 failed to grow its same-store sales. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests European Wax Center might have to change its strategy and pricing, which can disrupt operations. 
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect European Wax Center’s revenue to stall, close to its 12.5% annualized growth for the past five years. This projection is underwhelming and indicates its newer products and services will not accelerate its top-line performance yet.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared 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 10.5%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.
Final Judgment
European Wax Center isn’t a terrible business, but it isn’t one of our picks. With its shares underperforming the market lately, the stock trades at 6.6× forward P/E (or $3.53 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward one of Charlie Munger’s all-time favorite businesses.
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