Most consumer discretionary businesses succeed or fail based on the broader economy. Unfortunately, the industry’s recent performance suggests demand may be fading as discretionary stocks have pulled back by 8.2% over the past six months. This performance was worse than the S&P 500’s 2.9% fall.
Investors should tread carefully as many companies in this space are also unpredictable because they lack recurring revenue business models. On that note, here are three consumer stocks we’re swiping left on.
Sabre (SABR)
Market Cap: $915 million
Originally a division of American Airlines, Sabre (NASDAQ: SABR) is a technology provider for the global travel and tourism industry.
Why Do We Think SABR Will Underperform?
- Sluggish trends in its total bookings suggest customers aren’t adopting its solutions as quickly as the company hoped
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of -0.8% for the last two years
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Sabre’s stock price of $2.42 implies a valuation ratio of 12.9x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than SABR.
WeightWatchers (WW)
Market Cap: $61.73 million
Known by many for its old cable television commercials, WeightWatchers (NASDAQ: WW) is a wellness company offering a range of products and services promoting weight loss and healthy habits.
Why Is WW Risky?
- Demand for its offerings was relatively low as its number of members has underwhelmed
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
WeightWatchers is trading at $0.74 per share, or 0.5x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including WW in your portfolio.
Dave & Buster's (PLAY)
Market Cap: $662.3 million
Founded by a former game parlor and bar operator, Dave & Buster’s (NASDAQ: PLAY) operates a chain of arcades providing immersive entertainment experiences.
Why Should You Dump PLAY?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $19.70 per share, Dave & Buster's trades at 7.1x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than PLAY.
Stocks We Like More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out 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 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.
