Soho House has had an impressive run over the past six months as its shares have beaten the S&P 500 by 10%. The stock now trades at $8.85, marking a 25.5% gain. This performance may have investors wondering how to approach the situation.
Is there a buying opportunity in Soho House, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Soho House Not Exciting?
We’re glad investors have benefited from the price increase, but we don't have much confidence in Soho House. Here are three reasons there are better opportunities than SHCO and a stock we'd rather own.
1. Weak Growth in Members Points to Soft Demand
Revenue growth can be broken down into changes in price and volume (for companies like Soho House, our preferred volume metric is members). While both are important, the latter is the most critical to analyze because prices have a ceiling.
Soho House’s members came in at 267,494 in the latest quarter, and over the last two years, averaged 4.8% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. Cash Burn Ignites Concerns
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
While Soho House posted positive free cash flow this quarter, the broader story hasn’t been so clean. Over the last two years, Soho House’s demanding reinvestments to stay relevant have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 2%, meaning it lit $2.01 of cash on fire for every $100 in revenue.
3. High Debt Levels Increase Risk
Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.
Soho House’s $853.4 million of debt exceeds the $146.6 million of cash on its balance sheet. Furthermore, its 5× net-debt-to-EBITDA ratio (based on its EBITDA of $137.6 million over the last 12 months) shows the company is overleveraged.
At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Soho House could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.
We hope Soho House can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.
Final Judgment
Soho House isn’t a terrible business, but it doesn’t pass our quality test. With its shares beating the market recently, the stock trades at 9.7× forward EV-to-EBITDA (or $8.85 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at our favorite semiconductor picks and shovels play.
Stocks We Like More Than Soho House
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 6 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-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.
