The performance of consumer discretionary businesses is closely linked to economic cycles. Lately, it seems like demand trends have worked in their favor as the industry has returned 39.1% over the past six months, outpacing S&P 500 by 6.5 percentage points.
Although these companies have produced results lately, investors must be mindful because many are fads and only a few will stand the test of time. Taking that into account, here are three consumer stocks we’re swiping left on.
Stitch Fix (SFIX)
Market Cap: $561.5 million
One of the original subscription box companies, Stitch Fix (NASDAQ: SFIX) is an online personal styling and fashion service that curates personalized clothing selections for customers.
Why Should You Dump SFIX?
- Demand for its offerings was relatively low as its number of active clients has underwhelmed
- Historical operating margin losses point to an inefficient cost structure
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Stitch Fix’s stock price of $4.25 implies a valuation ratio of 13x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why SFIX doesn’t pass our bar.
Oxford Industries (OXM)
Market Cap: $604.1 million
The parent company of Tommy Bahama, Oxford Industries (NYSE: OXM) is a lifestyle fashion conglomerate with brands that embody outdoor happiness.
Why Should You Sell OXM?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Estimated sales growth of 1.4% for the next 12 months is soft and implies weaker demand
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $40.63 per share, Oxford Industries trades at 11.8x forward P/E. Dive into our free research report to see why there are better opportunities than OXM.
Scholastic (SCHL)
Market Cap: $722.2 million
Creator of the legendary Scholastic Book Fair, Scholastic (NASDAQ: SCHL) is an international company specializing in children's publishing, education, and media services.
Why Is SCHL Risky?
- Products and services aren't resonating with the market as its revenue declined by 1.7% annually over the last two years
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its shrinking returns suggest its past profit sources are losing steam
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Scholastic is trading at $28.37 per share, or 18.8x forward P/E. If you’re considering SCHL for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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