Retailers are overhauling their operations as technology redefines the shopping experience. 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 2.2% compared to 7.3% for the S&P 500.
Investors should tread carefully as many companies in this space can be value traps. Keeping that in mind, here are three consumer stocks we’re swiping left on.
Sleep Number (SNBR)
Market Cap: $236.8 million
Known for mattresses that can be adjusted with regards to firmness, Sleep Number (NASDAQ: SNBR) manufactures and sells its own brand of bedding products such as mattresses, bed frames, and pillows.
Why Should You Dump SNBR?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 43.2% annually, worse than its revenue
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Sleep Number’s stock price of $10.38 implies a valuation ratio of 15.5x forward EV-to-EBITDA. If you’re considering SNBR for your portfolio, see our FREE research report to learn more.
Genuine Parts (GPC)
Market Cap: $20.53 billion
Largely targeting the professional customer, Genuine Parts (NYSE: GPC) sells auto and industrial parts such as batteries, belts, bearings, and machine fluids.
Why Are We Cautious About GPC?
- The company has faced growth challenges as its 4% annual revenue increases over the last three years fell short of other consumer retail companies
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Free cash flow margin shrank by 3.3 percentage points over the last year, suggesting the company is consuming more capital to stay competitive
Genuine Parts is trading at $147.46 per share, or 18.1x forward P/E. Read our free research report to see why you should think twice about including GPC in your portfolio.
Tractor Supply (TSCO)
Market Cap: $28.75 billion
Started as a mail-order tractor parts business, Tractor Supply (NASDAQ: TSCO) is a retailer of general goods such as agricultural supplies, hardware, and pet food for the rural consumer.
Why Does TSCO Worry Us?
- The company has faced growth challenges as its 3% annual revenue increases over the last three years fell short of other consumer retail companies
- 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 36.3% is below its competitors, leaving less money for marketing and promotions
At $54.28 per share, Tractor Supply trades at 25x forward P/E. Dive into our free research report to see why there are better opportunities than TSCO.
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