The performance of consumer discretionary businesses is closely linked to economic cycles. This sensitive demand profile can cause discretionary stocks to plummet when macro uncertainty enters the fray, and over the past six months, the industry has shed 1.8%. This drawdown was disappointing since the S&P 500 climbed 4.7%.
A cautious approach is imperative when dabbling in these companies as many also lack recurring revenue characteristics and ride short-term fads. On that note, here are three consumer stocks we’re swiping left on.
fuboTV (FUBO)
Market Cap: $1.19 billion
Originally launched as a soccer streaming platform, fuboTV (NYSE:FUBO) is a video streaming service specializing in live sports, news, and entertainment content.
Why Do We Avoid FUBO?
- Number of domestic subscribers has disappointed over the past two years, indicating weak demand for its offerings
- Persistent operating margin losses suggest the business manages its expenses poorly
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 6.5 percentage points
fuboTV’s stock price of $3.47 implies a valuation ratio of 75x forward P/E. Dive into our free research report to see why there are better opportunities than FUBO.
Red Rock Resorts (RRR)
Market Cap: $3.54 billion
Founded in 1976, Red Rock Resorts (NASDAQ:RRR) operates a range of casino resorts and entertainment properties, primarily in the Las Vegas metropolitan area.
Why Are We Hesitant About RRR?
- Annual revenue growth of 7.1% over the last five years was below our standards for the consumer discretionary sector
- Estimated sales growth of 1.6% for the next 12 months implies demand will slow from its two-year trend
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $59.71 per share, Red Rock Resorts trades at 36x forward P/E. Check out our free in-depth research report to learn more about why RRR doesn’t pass our bar.
Pursuit (PRSU)
Market Cap: $997.5 million
With attractions ranging from glacier tours in the Canadian Rockies to an oceanfront geothermal lagoon in Iceland, Pursuit Attractions and Hospitality (NYSE:PRSU) operates iconic travel experiences, experiential marketing services, and exhibition management across North America and Europe.
Why Does PRSU Fall Short?
- Products and services have few die-hard fans as sales have declined by 16.4% annually over the last five years
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 1.4% for the last two years
- Push for growth has led to negative returns on capital, signaling value destruction
Pursuit trades at a stock price of $35.28. If you’re considering PRSU for your portfolio, see our FREE research report to learn more.
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