Most consumer discretionary businesses succeed or fail based on the broader economy. Over the past six months, it seems like demand trends are working against their favor as the industry has tumbled by 11.9%. This drawdown was particularly discouraging since the S&P 500 held its ground.
A cautious approach is imperative when dabbling in these companies as many also lack recurring revenue characteristics and ride short-term fads. With that said, here are three consumer stocks that may face trouble.
Boyd Gaming (BYD)
Market Cap: $6.03 billion
Run by the Boyd family, Boyd Gaming (NYSE: BYD) is a diversified operator of gaming entertainment properties across the United States, offering casino games, hotel accommodations, and dining.
Why Is BYD Not Exciting?
- Muted 4.1% annual revenue growth over the last two years shows its demand lagged behind its consumer discretionary peers
- Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
- ROIC of 13.8% reflects management’s challenges in identifying attractive investment opportunities
Boyd Gaming’s stock price of $74.08 implies a valuation ratio of 11.5x forward P/E. Check out our free in-depth research report to learn more about why BYD doesn’t pass our bar.
YETI (YETI)
Market Cap: $2.61 billion
Founded by two brothers from Texas, YETI (NYSE: YETI) specializes in durable outdoor goods including coolers, drinkware, and other gear tailored to adventure enthusiasts.
Why Are We Wary of YETI?
- Lackluster 7.1% annual revenue growth over the last two years indicates the company is losing ground to competitors
- Estimated sales growth of 3.4% for the next 12 months implies demand will slow from its two-year trend
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $31.57 per share, YETI trades at 11.7x forward P/E. Read our free research report to see why you should think twice about including YETI in your portfolio.
Ruger (RGR)
Market Cap: $594.8 million
Founded in 1949, Ruger (NYSE: RGR) is an American manufacturer of firearms for the commercial sporting market.
Why Do We Steer Clear of RGR?
- Sales tumbled by 3.9% annually over the last two years, showing consumer trends are working against its favor
- Falling earnings per share over the last four years has some investors worried as stock prices ultimately follow EPS over the long term
- Eroding returns on capital suggest its historical profit centers are aging
Ruger is trading at $35.93 per share, or 11.1x forward EV-to-EBITDA. To fully understand why you should be careful with RGR, check out our full research report (it’s free).
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