Most consumer discretionary businesses succeed or fail based on the broader economy. This sensitive demand profile can cause discretionary stocks to plummet when macro uncertainty enters the fray, and over the past six months, the industry has shed 4.9%. This drawdown was discouraging since the S&P 500 held steady.

Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. On that note, here is one resilient consumer stock at the top of our wish list and two we’re passing on.

Two Consumer Discretionary Stocks to Sell:

Sonos (SONO)

Market Cap: $1.38 billion

A pioneer in connected home audio systems, Sonos (NASDAQ: SONO) offers a range of premium wireless speakers and sound systems.

Why Do We Pass on SONO?

1. Annual revenue declines of 9.1% over the last two years indicate problems with its market positioning
2. Poor expense management has led to operating losses
3. Earnings per share fell by 5.8% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable

Sonos’s stock price of $11.68 implies a valuation ratio of 19.7x forward price-to-earnings. If you’re considering SONO for your portfolio, see our FREE research report to learn more.

The Real Brokerage (REAX)

Market Cap: $934.2 million

Founded in Toronto, Canada in 2014, The Real Brokerage (NASDAQ: REAX) is a technology-driven real estate brokerage firm combining a tech-centric model with an agent-centric philosophy.

Why Do We Think Twice About REAX?

1. Persistent operating losses suggest the business manages its expenses poorly
2. Incremental sales over the last five years were much less profitable as its earnings per share fell by 3.8% annually while its revenue grew
3. Low free cash flow margin of 3.4% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders

At $4.73 per share, The Real Brokerage trades at 18.9x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why REAX doesn’t pass our bar.

One Consumer Discretionary Stock to Watch:

United Parks & Resorts (PRKS)

Market Cap: $2.69 billion

Parent company of SeaWorld and home of the world-famous Shamu, United Parks & Resorts (NYSE: PRKS) is a theme park chain featuring marine life, live entertainment, roller coasters, and waterparks.

Why Do We Like PRKS?

1. Healthy operating margin of 26.7% shows it’s a well-run company with efficient processes
2. Share repurchases have amplified shareholder returns as its annual earnings per share growth of 24.3% exceeded its revenue gains over the last five years
3. Returns on capital are climbing as management makes more lucrative bets

United Parks & Resorts is trading at $48.82 per share, or 10x forward price-to-earnings. Is now the time to initiate a position? Find out in our full research report, it’s free.

Stocks We Like Even More

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