Most consumer discretionary businesses succeed or fail based on the broader economy. Unfortunately, the industry’s recent performance suggests demand may be fading as discretionary stocks have pulled back by 13.3% over the past six months. This performance was noticeably worse than the S&P 500’s 2.4% fall.

Investors should tread carefully as many companies in this space are also unpredictable because they lack recurring revenue business models. On that note, here are three consumer stocks that may face trouble.

Stitch Fix (SFIX)

Market Cap: $601.5 million

One of the original subscription box companies, Stitch Fix (NASDAQ: SFIX) is an online personal styling and fashion service that curates personalized clothing selections for customers.

Why Do We Pass on SFIX?

1. Number of active clients has disappointed over the past two years, indicating weak demand for its offerings
2. Poor expense management has led to operating margin losses
3. Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable

Stitch Fix is trading at $4.60 per share, or 16.5x forward EV-to-EBITDA. To fully understand why you should be careful with SFIX, check out our full research report (it’s free).

Churchill Downs (CHDN)

Market Cap: $6.94 billion

Famous for hosting the Kentucky Derby, Churchill Downs (NASDAQ: CHDN) operates a horse racing, online wagering, and gaming entertainment business in the United States.

Why Are We Cautious About CHDN?

1. Estimated sales growth of 5.5% for the next 12 months implies demand will slow from its two-year trend
2. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
3. Underwhelming 7.8% return on capital reflects management’s difficulties in finding profitable growth opportunities

Churchill Downs’s stock price of $96.03 implies a valuation ratio of 14.8x forward P/E. Check out our free in-depth research report to learn more about why CHDN doesn’t pass our bar.

Red Rock Resorts (RRR)

Market Cap: $2.93 billion

Founded in 1976, Red Rock Resorts (NASDAQ: RRR) operates a range of casino resorts and entertainment properties, primarily in the Las Vegas metropolitan area.

Why Do We Avoid RRR?

1. Annual revenue growth of 1.7% over the last five years was below our standards for the consumer discretionary sector
2. Demand will likely fall over the next 12 months as Wall Street expects flat revenue
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $49.40 per share, Red Rock Resorts trades at 30.2x forward P/E. If you’re considering RRR for your portfolio, see our FREE research report to learn more.

Stocks We Like More

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free.