Most consumer discretionary businesses succeed or fail based on the broader economy. Over the past six months, it seems like demand trends are working against their favor as the industry has tumbled by 4.7%. This performance was disheartening since the S&P 500 gained 4.1%.

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 steering clear of.

Levi's (LEVI)

Market Cap: $8.33 billion

Credited for inventing the first pair of blue jeans in 1873, Levi's (NYSE: LEVI) is an apparel company renowned for its iconic denim products and classic American style.

Why Should You Sell LEVI?

1. 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
2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2.6%
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Levi’s stock price of $21.18 implies a valuation ratio of 16.6x forward P/E. Read our free research report to see why you should think twice about including LEVI in your portfolio.

Sonos (SONO)

Market Cap: $1.28 billion

A pioneer in connected home audio systems, Sonos (NASDAQ: SONO) offers a range of premium wireless speakers and sound systems.

Why Is SONO Risky?

1. Annual revenue declines of 6.3% over the last two years indicate problems with its market positioning
2. Persistent operating margin losses suggest the business manages its expenses poorly
3. Negative returns on capital show that some of its growth strategies have backfired

Sonos is trading at $10.70 per share, or 50.8x forward P/E. To fully understand why you should be careful with SONO, check out our full research report (it’s free).

Wolverine Worldwide (WWW)

Market Cap: $1.65 billion

Founded in 1883, Wolverine Worldwide (NYSE: WWW) is a global footwear company with a diverse portfolio of brands including Merrell, Hush Puppies, and Saucony.

Why Do We Pass on WWW?

1. Annual sales declines of 4.1% for the past five years show its products and services struggled to connect with the market
2. Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 10.5% annually, worse than its revenue
3. Negative returns on capital show management lost money while trying to expand the business

At $19.53 per share, Wolverine Worldwide trades at 18.4x forward P/E. Check out our free in-depth research report to learn more about why WWW doesn’t pass our bar.

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