Consumer discretionary businesses are levered to the highs and lows of economic cycles. Over the past six months, it seems like demand trends are working against their favor as the industry has tumbled by 5.8%. This performance is a noticeable divergence from the S&P 500’s 5.4% return.
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. Taking that into account, here are three consumer stocks that may face trouble.
Hanesbrands (HBI)
Market Cap: $1.71 billion
A classic American staple founded in 1901, Hanesbrands (NYSE: HBI) is a clothing company known for its array of basic apparel including innerwear and activewear.
Why Should You Sell HBI?
- 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
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 18% annually, worse than its revenue
Hanesbrands’s stock price of $4.79 implies a valuation ratio of 9x forward P/E. If you’re considering HBI for your portfolio, see our FREE research report to learn more.
WideOpenWest (WOW)
Market Cap: $279 million
Initially started in Denver as a cable television provider, WideOpenWest (NYSE: WOW) provides high-speed internet, cable, and telephone services to the Midwest and Southeast regions of the U.S.
Why Are We Out on WOW?
- Number of subscribers has disappointed over the past two years, indicating weak demand for its offerings
- Cash-burning history makes us doubt the long-term viability of its business model
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $5 per share, WideOpenWest trades at 1.1x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including WOW in your portfolio.
Inspired (INSE)
Market Cap: $228 million
Specializing in digital casino gaming, Inspired (NASDAQ: INSE) is a provider of gaming hardware, virtual sports platforms, and server-based gaming systems.
Why Does INSE Give Us Pause?
- Lackluster 1.1% annual revenue growth over the last two years indicates the company is losing ground to competitors
- Demand will likely fall over the next 12 months as Wall Street expects flat revenue
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Inspired is trading at $8.47 per share, or 2.2x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why INSE doesn’t pass our bar.
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