The performance of consumer discretionary businesses is closely linked to economic cycles. Thankfully for the industry, all signs are pointing up as discretionary stocks have gained 25.9% over the past six months, beating the S&P 500’s 17.5% return.
Nevertheless, this stability can be deceiving as many companies in this space lack recurring revenue characteristics and ride short-term fads. With that said, here are three consumer stocks best left ignored.
ThredUp (TDUP)
Market Cap: $1.29 billion
Founded to revolutionize thrifting, ThredUp (NASDAQ: TDUP) is a leading online fashion resale marketplace offering a wide selection of gently-used clothing and accessories.
Why Should You Dump TDUP?
- Demand for its offerings was relatively low as its number of orders has underwhelmed
- Historical operating margin losses point to an inefficient cost structure
- Cash burn makes us question whether it can achieve sustainable long-term growth
At $10.57 per share, ThredUp trades at 99.8x forward EV-to-EBITDA. To fully understand why you should be careful with TDUP, check out our full research report (it’s free).
Nike (NKE)
Market Cap: $106.8 billion
Originally selling Japanese Onitsuka Tiger sneakers as Blue Ribbon Sports, Nike (NYSE: NKE) is a global titan in athletic footwear, apparel, equipment, and accessories.
Why Are We Out on NKE?
- Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Diminishing returns on capital suggest its earlier profit pools are drying up
Nike is trading at $72.56 per share, or 42.2x forward P/E. Read our free research report to see why you should think twice about including NKE in your portfolio.
Soho House (SHCO)
Market Cap: $1.73 billion
Boasting fancy locations in hubs such as NYC and Miami, Soho House (NYSE: SHCO) is a global hospitality brand offering exclusive private member clubs, hotels, and restaurants.
Why Are We Hesitant About SHCO?
- Number of members has disappointed over the past two years, indicating weak demand for its offerings
- Negative free cash flow raises questions about the return timeline for its investments
- High net-debt-to-EBITDA ratio of 5× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Soho House’s stock price of $8.86 implies a valuation ratio of 9.7x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than SHCO.
High-Quality Stocks for All Market Conditions
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