Retailers are evolving to meet the expectations of modern, tech-savvy shoppers. Still, demand can be volatile as the industry is exposed to the ups and downs of consumer spending. This has stirred some uncertainty lately as retail stocks have lagged the market over the past six months, posting a return of 5.5% compared to 7.6% for the S&P 500.
A cautious approach is imperative when dabbling in these companies as many will light cash on fire by opening new locations without the proper justifications. Taking that into account, here are three consumer stocks we’re swiping left on.
Camping World (CWH)
Market Cap: $753.2 million
Founded in 1966 as a single recreational vehicle (RV) dealership, Camping World (NYSE: CWH) still sells RVs along with boats and general merchandise for outdoor activities.
Why Should You Sell CWH?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Sales were less profitable over the last three years as its earnings per share fell by 58.4% annually, worse than its revenue declines
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Camping World is trading at $12.15 per share, or 16.6x forward P/E. Check out our free in-depth research report to learn more about why CWH doesn’t pass our bar.
Williams-Sonoma (WSM)
Market Cap: $25.17 billion
Started in 1956 as a store specializing in French cookware, Williams-Sonoma (NYSE: WSM) is a specialty retailer of higher-end kitchenware, home goods, and furniture.
Why Are We Cautious About WSM?
- Ongoing store closures and lackluster same-store sales indicate sluggish demand and a focus on consolidation
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Earnings growth underperformed the sector average over the last three years as its EPS grew by just 3.3% annually
Williams-Sonoma’s stock price of $210.85 implies a valuation ratio of 24.1x forward P/E. Read our free research report to see why you should think twice about including WSM in your portfolio.
AutoNation (AN)
Market Cap: $6.98 billion
With a vast network of over 300 locations strategically concentrated in America's Sunbelt region, AutoNation (NYSE: AN) operates one of America's largest networks of automotive dealerships, selling new and used vehicles, parts, and services across multiple brands.
Why Should You Dump AN?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Gross margin of 17.9% is an output of its commoditized inventory
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $201.02 per share, AutoNation trades at 9.6x forward P/E. If you’re considering AN for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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