Retailers are evolving to meet the expectations of modern, tech-savvy shoppers. Still, demand can be volatile as the industry is exposed to the ups and downs of consumer spending. This has stirred some uncertainty lately as retail stocks have lagged the market over the past six months, posting a return of 10.1% compared to 15.3% for the S&P 500.
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. Keeping that in mind, here are three consumer stocks we’re swiping left on.
Advance Auto Parts (AAP)
Market Cap: $3.11 billion
Founded in Virginia in 1932, Advance Auto Parts (NYSE: AAP) is an auto parts and accessories retailer that sells everything from carburetors to motor oil to car floor mats.
Why Do We Avoid AAP?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Capital intensity has ramped up over the last year as its free cash flow margin decreased by 6.7 percentage points
- High net-debt-to-EBITDA ratio of 7× could force the company to raise capital at unfavorable terms if market conditions deteriorate
At $52 per share, Advance Auto Parts trades at 19.9x forward P/E. Check out our free in-depth research report to learn more about why AAP doesn’t pass our bar.
CarMax (KMX)
Market Cap: $5.68 billion
Known for its transparent, customer-centric approach and wide selection of vehicles, Carmax (NYSE: KMX) is the largest automotive retailer in the United States.
Why Do We Steer Clear of KMX?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Gross margin of 10.9% is an output of its commoditized inventory
CarMax is trading at $38.28 per share, or 16.8x forward P/E. If you’re considering KMX for your portfolio, see our FREE research report to learn more.
Petco (WOOF)
Market Cap: $898.9 million
Historically known for its window displays of pets for sale or adoption, Petco (NASDAQ: WOOF) is a specialty retailer of pet food and supplies as well as a provider of services such as wellness checks and grooming.
Why Is WOOF Risky?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Earnings per share fell by 42% annually over the last three years while its revenue was flat, partly because it diluted shareholders
- 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Petco’s stock price of $3.21 implies a valuation ratio of 14.2x forward P/E. Read our free research report to see why you should think twice about including WOOF in your portfolio.
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 Strong Momentum Stocks for this week. 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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free.
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