Most consumer discretionary businesses succeed or fail based on the broader economy. Over the past six months, it seems like demand trends are working against their favor as the industry has tumbled by 7.7%. This performance was worse than the S&P 500’s 2.1% loss.

Investors should tread carefully as many companies in this space are also unpredictable because they lack recurring revenue business models. With that said, here are three consumer stocks that may face trouble.

fuboTV (FUBO)

Market Cap: $287.6 million

Originally launched as a soccer streaming platform, fuboTV (NYSE: FUBO) is a video streaming service specializing in live sports, news, and entertainment content.

Why Does FUBO Give Us Pause?

1. Sales trends were unexciting over the last one years as its 3.8% annual growth was below the typical consumer discretionary company
2. Historical operating margin losses point to an inefficient cost structure
3. Negative free cash flow raises questions about the return timeline for its investments

At $9.86 per share, fuboTV trades at 0.3x forward EV-to-EBITDA. If you’re considering FUBO for your portfolio, see our FREE research report to learn more.

AMC Networks (AMCX)

Market Cap: $306.3 million

Originally the joint-venture of four cable television companies, AMC Networks (NASDAQ: AMCX) is a broadcaster producing a diverse range of television shows and movies.

Why Are We Out on AMCX?

1. Sales tumbled by 3.9% annually over the last five years, showing consumer trends are working against its favor
2. Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 3.3 percentage points over the next year
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

AMC Networks’s stock price of $7.18 implies a valuation ratio of 4.1x forward P/E. Check out our free in-depth research report to learn more about why AMCX doesn’t pass our bar.

Smith & Wesson (SWBI)

Market Cap: $661.2 million

With a history dating back to 1852, Smith & Wesson (NASDAQ: SWBI) is a firearms manufacturer known for its handguns and rifles.

Why Do We Think SWBI Will Underperform?

1. Annual sales declines of 12.2% for the past five years show its products and services struggled to connect with the market
2. Poor free cash flow margin of 3.1% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Smith & Wesson is trading at $14.76 per share, or 46.2x forward P/E. To fully understand why you should be careful with SWBI, check out our full research report (it’s free).

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