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 4.6%. This performance is a far cry from the S&P 500’s 5.4% ascent.
A cautious approach is imperative when dabbling in these companies as many also lack recurring revenue characteristics and ride short-term fads. Keeping that in mind, here are three consumer stocks that may face trouble.
Peloton (PTON)
Market Cap: $2.93 billion
Started as a Kickstarter campaign, Peloton (NASDAQ: PTON) is a fitness technology company known for its at-home exercise equipment and interactive online workout classes.
Why Should You Dump PTON?
- Sluggish trends in its connected fitness subscribers suggest customers aren’t adopting its solutions as quickly as the company hoped
- Projected sales decline of 4.3% over the next 12 months indicates demand will continue deteriorating
- Suboptimal cost structure is highlighted by its history of operating margin losses
At $7.38 per share, Peloton trades at 8.7x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than PTON.
Brunswick (BC)
Market Cap: $3.89 billion
Formerly known as Brunswick-Balke-Collender Company, Brunswick (NYSE: BC) is a designer and manufacturer of recreational marine products, including boats, engines, and marine parts.
Why Is BC Risky?
- Annual sales declines of 13% for the past two years show its products and services struggled to connect with the market
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 4.2% annually
- Diminishing returns on capital suggest its earlier profit pools are drying up
Brunswick’s stock price of $59.16 implies a valuation ratio of 14.8x forward P/E. Check out our free in-depth research report to learn more about why BC doesn’t pass our bar.
Marcus & Millichap (MMI)
Market Cap: $1.22 billion
Founded in 1971, Marcus & Millichap (NYSE: MMI) specializes in commercial real estate investment sales, financing, research, and advisory services.
Why Do We Think MMI Will Underperform?
- Products and services have few die-hard fans as sales have declined by 3.2% annually over the last five years
- Negative free cash flow raises questions about the return timeline for its investments
- Eroding returns on capital suggest its historical profit centers are aging
Marcus & Millichap is trading at $31.32 per share, or 313.1x forward P/E. If you’re considering MMI for your portfolio, see our FREE research report to learn more.
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