Retailers are adapting their business models as technology changes how people shop. Still, secular trends are working against their favor as e-commerce continues to take share from brick and mortars. This puts retail stocks in a tough spot, and over the past six months, the industry has pulled back by 3.4%. This drop was disheartening since the S&P 500 gained 4.9%.
While some companies have durable competitive advantages that enable them to grow consistently, the odds aren’t great for the ones we’re analyzing today. Keeping that in mind, here are three consumer stocks we’re swiping left on.
Lowe's (LOW)
Market Cap: $136.4 billion
Founded in North Carolina as Lowe's North Wilkesboro Hardware, the company is a home improvement retailer that sells everything from paint to tools to building materials.
Why Are We Cautious About LOW?
- Store closures and disappointing same-store sales suggest demand is sluggish and it’s rightsizing its operations
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
Lowe’s stock price of $243.50 implies a valuation ratio of 19.6x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than LOW.
Urban Outfitters (URBN)
Market Cap: $4.99 billion
Founded as a purveyor of vintage items, Urban Outfitters (NASDAQ:URBN) now largely sells new apparel and accessories to teens and young adults seeking on-trend fashion.
Why Does URBN Worry Us?
- Muted 6.9% annual revenue growth over the last five years shows its demand lagged behind its consumer retail peers
- Modest revenue base of $5.55 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Urban Outfitters is trading at $51.80 per share, or 12.4x forward price-to-earnings. To fully understand why you should be careful with URBN, check out our full research report (it’s free).
Advance Auto Parts (AAP)
Market Cap: $2.01 billion
Founded in Virginia in 1932, Advance Auto Parts (NYSE:AAP) is an auto parts and accessories retailer that sells everything from carburetors to motor oil to car floor mats.
Why Do We Avoid AAP?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Operating margin declined by 8.3 percentage points over the last year as its sales cratered
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $33.75 per share, Advance Auto Parts trades at 21.3x forward price-to-earnings. Read our free research report to see why you should think twice about including AAP in your portfolio.
Stocks We Like More
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound by checking 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 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.
