The performance of consumer discretionary businesses is closely linked to economic cycles. 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 7.9%. This drop was worse than the S&P 500’s 1.3% decline.

A cautious approach is imperative when dabbling in these companies as many also lack recurring revenue characteristics and ride short-term fads. On that note, here are three consumer stocks we’re swiping left on.

Charter (CHTR)

Market Cap: $27.51 billion

Operating as Spectrum, Charter (NASDAQ: CHTR) is a leading telecommunications company offering cable television, high-speed internet, and voice services across the United States.

Why Is CHTR Risky?

1. Performance surrounding its internet subscribers has lagged its peers
2. Free cash flow margin is expected to increase by 1.8 percentage points next year, suggesting the company will have more capital to invest or return to shareholders
3. Unchanged returns on capital make it difficult for the company’s valuation multiple to re-rate

Charter is trading at $218.82 per share, or 5x forward P/E. Read our free research report to see why you should think twice about including CHTR in your portfolio.

Bark (BARK)

Market Cap: $100.3 million

Making a name for itself with the BarkBox, Bark (NYSE: BARK) specializes in subscription-based, personalized pet products.

Why Do We Steer Clear of BARK?

1. 5.2% annual revenue growth over the last five years was slower than its consumer discretionary peers
2. Cash-burning history makes us doubt the long-term viability of its business model
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

At $0.61 per share, Bark trades at 32.7x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than BARK.

Frontier (ULCC)

Market Cap: $849.6 million

Recognizable for the colorful animals adorning each aircraft tail, Frontier Group Holdings (NASDAQ: ULCC) is an ultra low-cost airline that provides budget-friendly flights throughout the United States and select international destinations in the Americas.

Why Do We Avoid ULCC?

1. Annual revenue growth of 1.9% over the last two years was below our standards for the consumer discretionary sector
2. Returns on capital are growing as management invests in more worthwhile ventures
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

Frontier’s stock price of $3.73 implies a valuation ratio of 5.5x forward EV-to-EBITDA. To fully understand why you should be careful with ULCC, check out our full research report (it’s free).

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