Retailers are evolving to meet the expectations of modern, tech-savvy shoppers. But many seem to be moving too slowly as their demand is lagging, causing the industry to underperform the market - over the past six months, retail stocks have shed 3.7%. This drawdown is a noticeable divergence from the S&P 500’s 10.1% return.
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. On that note, here are three consumer stocks best left ignored.
RH (RH)
Market Cap: $2.75 billion
Formerly known as Restoration Hardware, RH (NYSE: RH) is a specialty retailer that exclusively sells its own brand of high-end furniture and home decor.
Why Are We Hesitant About RH?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Negative free cash flow raises questions about the return timeline for its investments
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
RH’s stock price of $139.05 implies a valuation ratio of 13.3x forward P/E. Dive into our free research report to see why there are better opportunities than RH.
Lithia (LAD)
Market Cap: $7.13 billion
With a strong presence in the Western US, Lithia Motors (NYSE: LAD) sells a wide range of vehicles, including new and used cars, trucks, SUVs, and luxury vehicles from various manufacturers.
Why Does LAD Worry Us?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 15.6%
- 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $287.48 per share, Lithia trades at 7.9x forward P/E. To fully understand why you should be careful with LAD, check out our full research report (it’s free for active Edge members).
Academy Sports (ASO)
Market Cap: $2.82 billion
Founded in 1938 as a tire shop before expanding into fishing equipment, Academy Sports & Outdoor (NASDAQ: ASO) sells a broad selection of sporting goods but is still known for its outdoor activity merchandise.
Why Are We Wary of ASO?
- Annual revenue growth of 4% over the last six years was below our standards for the consumer retail sector
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Falling earnings per share over the last four years has some investors worried as stock prices ultimately follow EPS over the long term
Academy Sports is trading at $41.73 per share, or 6.8x forward P/E. Check out our free in-depth research report to learn more about why ASO doesn’t pass our bar.
Stocks We Like More
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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