Retailers are adapting their business models as technology changes how people shop. 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 tumbled by 13.7% over the past six months. This performance was worse than the S&P 500’s 5.5% loss.
A cautious approach is imperative when dabbling in these companies as many will light cash on fire by opening new locations without the proper justifications. Taking that into account, here are three consumer stocks we’re passing on.
Designer Brands (DBI)
Market Cap: $160.5 million
Founded in 1969 as a shoe importer and distributor, Designer Brands (NYSE: DBI) is an American discount retailer focused on footwear and accessories.
Why Should You Dump DBI?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
- High net-debt-to-EBITDA ratio of 9× increases the risk of forced asset sales or dilutive financing if operational performance weakens
At $3.30 per share, Designer Brands trades at 6.5x forward P/E. To fully understand why you should be careful with DBI, check out our full research report (it’s free).
CarMax (KMX)
Market Cap: $10.09 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 Does KMX Worry Us?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Widely-available products (and therefore stiff competition) result in an inferior gross margin of 10.6% that must be offset through higher volumes
- 17× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
CarMax’s stock price of $66.10 implies a valuation ratio of 16.3x forward P/E. Check out our free in-depth research report to learn more about why KMX doesn’t pass our bar.
Sportsman's Warehouse (SPWH)
Market Cap: $68.53 million
A go-to destination for individuals passionate about hunting, fishing, camping, hiking, shooting sports, and more, Sportsman's Warehouse (NASDAQ: SPWH) is an American specialty retailer offering a diverse range of active gear, equipment, and apparel.
Why Do We Avoid SPWH?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Suboptimal cost structure is highlighted by its history of operating losses
- High net-debt-to-EBITDA ratio of 15× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Sportsman's Warehouse is trading at $1.73 per share, or 1.9x forward EV-to-EBITDA. If you’re considering SPWH for your portfolio, see our FREE research report to learn more.
Stocks We Like More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free.
