The performance of consumer discretionary businesses is closely linked to economic cycles. Unfortunately, the industry’s recent performance suggests demand may be fading as discretionary stocks have pulled back by 11.4% over the past six months. This performance was worse than the S&P 500’s 6.2% loss.
Investors should tread carefully as many companies in this space are also unpredictable because they lack recurring revenue business models. Taking that into account, here are three consumer stocks best left ignored.
Genesco (GCO)
Market Cap: $221.5 million
Spanning a broad range of styles, brands, and prices, Genesco (NYSE: GCO) sells footwear, apparel, and accessories through multiple brands and banners.
Why Are We Out on GCO?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and in-store experience
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 19.4% annually
- High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Genesco is trading at $20.07 per share, or 0.1x forward price-to-sales. To fully understand why you should be careful with GCO, check out our full research report (it’s free).
LKQ (LKQ)
Market Cap: $10.17 billion
A global distributor of vehicle parts and accessories, LKQ (NASDAQ: LKQ) offers its customers a comprehensive selection of high-quality, affordably priced automobile products.
Why Should You Dump LKQ?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Estimated sales growth of 2% for the next 12 months implies demand will slow from its two-year trend
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $39.40 per share, LKQ trades at 10.7x forward P/E. If you’re considering LKQ for your portfolio, see our FREE research report to learn more.
Guess (GES)
Market Cap: $578 million
Flexing the iconic upside-down triangle logo with a question mark, Guess (NYSE: GES) is a global fashion brand known for its trendy clothing, accessories, and denim wear.
Why Should You Sell GES?
- Annual revenue growth of 2.3% over the last five years was below our standards for the consumer discretionary sector
- Estimated sales growth of 3.6% for the next 12 months implies demand will slow from its two-year trend
- 5× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Guess’s stock price of $11.15 implies a valuation ratio of 5.4x forward P/E. Check out our free in-depth research report to learn more about why GES doesn’t pass our bar.
Stocks We Like More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out 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 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 Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.
