Most consumer discretionary businesses succeed or fail based on the broader economy. Lately, it seems like demand trends have worked in their favor as the industry has returned 33.1% over the past six months, outpacing S&P 500 by 8.4 percentage points.

Regardless of these results, investors should tread carefully as many companies in this space are unpredictable because they lack recurring revenue business models. Taking that into account, here are three consumer stocks we’re passing on.

Oxford Industries (OXM)

Market Cap: $605.4 million

The parent company of Tommy Bahama, Oxford Industries (NYSE: OXM) is a lifestyle fashion conglomerate with brands that embody outdoor happiness.

Why Should You Dump OXM?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and in-store experience
2. Projected sales growth of 1.4% for the next 12 months suggests sluggish demand
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Oxford Industries is trading at $40.88 per share, or 11.8x forward P/E. To fully understand why you should be careful with OXM, check out our full research report (it’s free).

Churchill Downs (CHDN)

Market Cap: $6.73 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 Does CHDN Worry Us?

1. Muted 13.6% annual revenue growth over the last two years shows its demand lagged behind its consumer discretionary peers
2. Estimated sales growth of 5.3% for the next 12 months implies demand will slow from its two-year trend
3. Low returns on capital reflect management’s struggle to allocate funds effectively

At $96.85 per share, Churchill Downs trades at 14.3x forward P/E. Read our free research report to see why you should think twice about including CHDN in your portfolio.

CBRE (CBRE)

Market Cap: $45.61 billion

Established in 1906, CBRE (NYSE: CBRE) is one of the largest commercial real estate services firms in the world.

Why Are We Out on CBRE?

1. Annual sales growth of 9.4% over the last five years lagged behind its consumer discretionary peers as its large revenue base made it difficult to generate incremental demand
2. Poor free cash flow margin of 2.6% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

CBRE’s stock price of $155.63 implies a valuation ratio of 24.2x forward P/E. Check out our free in-depth research report to learn more about why CBRE doesn’t pass our bar.

High-Quality Stocks for All Market Conditions

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