Most consumer discretionary businesses succeed or fail based on the broader economy. This volatility leads to big swings in stock prices that have worked in their favor recently - over the past six months, the industry has returned 14.8% and beat the S&P 500 by 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 steering clear of.
Steven Madden (SHOO)
Market Cap: $3.19 billion
As seen in the infamous Wolf of Wall Street movie, Steven Madden (NASDAQ: SHOO) is a fashion brand famous for its trendy and innovative footwear, appealing to a young and style-conscious audience.
Why Do We Steer Clear of SHOO?
- 13.2% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Poor free cash flow margin of 7.8% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $43.84 per share, Steven Madden trades at 21.1x forward P/E. Read our free research report to see why you should think twice about including SHOO in your portfolio.
Funko (FNKO)
Market Cap: $193.2 million
Boasting partnerships with media franchises like Marvel and One Piece, Funko (NASDAQ: FNKO) is a company specializing in creating and distributing licensed pop culture collectibles.
Why Is FNKO Risky?
- Muted 7.7% annual revenue growth over the last five years shows its demand lagged behind its consumer discretionary peers
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- 7× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Funko’s stock price of $3.57 implies a valuation ratio of 5x forward EV-to-EBITDA. To fully understand why you should be careful with FNKO, check out our full research report (it’s free for active Edge members).
AT&T (T)
Market Cap: $172.6 billion
Founded by Alexander Graham Bell, AT&T (NYSE: T) is a multinational telecomm conglomerate providing a range of communications and internet services.
Why Should You Dump T?
- Annual sales declines of 5.6% for the past five years show its products and services struggled to connect with the market
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 2.3 percentage points over the next year
- Returns on capital are increasing as management makes relatively better investment decisions
AT&T is trading at $24.30 per share, or 11.4x forward P/E. If you’re considering T for your portfolio, see our FREE research report to learn more.
Stocks We Like More
Check out the high-quality names we’ve flagged in our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
