The performance of consumer discretionary businesses is closely linked to economic cycles. Unfortunately, the industry’s recent performance suggests demand may be slowing as discretionary stocks were flat over the past six months while the S&P 500 gained 6.5%.
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 we’re passing on.
Callaway Golf Company (CALY)
Market Cap: $2.68 billion
Formed between the merger of Callaway and Topgolf, Callaway Golf Company (NYSE: CALY) sells golf equipment and operates technology-driven golf entertainment venues.
Why Do We Think CALY Will Underperform?
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- Negative free cash flow raises questions about the return timeline for its investments
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Callaway Golf Company is trading at $14.59 per share, or 30.4x forward P/E. Read our free research report to see why you should think twice about including CALY in your portfolio.
Clarus (CLAR)
Market Cap: $129 million
Initially a financial services business, Clarus (NASDAQ: CLAR) designs, manufactures, and distributes outdoor equipment and lifestyle products.
Why Should You Sell CLAR?
- Lackluster 4.2% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Clarus’s stock price of $3.49 implies a valuation ratio of 21.6x forward P/E. To fully understand why you should be careful with CLAR, check out our full research report (it’s free).
H&R Block (HRB)
Market Cap: $3.85 billion
Founded in 1955 by brothers Henry W. Bloch and Richard A. Bloch, H&R Block (NYSE: HRB) is a tax preparation company offering professional tax assistance and financial solutions to individuals and small businesses.
Why Do We Pass on HRB?
- Sales trends were unexciting over the last five years as its 5.6% annual growth was below the typical consumer discretionary company
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 16.3% for the last two years
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $30.37 per share, H&R Block trades at 1x forward price-to-sales. Read our free research report to see why you should think twice about including HRB in your portfolio.
Stocks We Like More
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
