Stitch Fix No Longer a Buy, Says Leading Analyst
Renowned stock analyst scratched Point correction (NASDAQ: SFIX) from her holiday gift list. After market hours Thursday, it was reported that Goldman Sachs (NYSE: GS) Tipster Heath Terry lowered his recommendation on the action to neutral from the previous buy. Meanwhile, he maintains his goal of $ 58 per share.
It’s not that Terry thinks the business lacks potential. In fact, he made the following, more optimistic statement:
We continue to believe that the opportunity for StitchFix is significant as the apparel category recovers and the shift in share to e-commerce that occurred during the pandemic becomes more apparent, operations normalize, flows additional revenue like direct buying overtakes the core and retail store closings further strain online consumers.
The problem is the share price, which has risen almost 50% this month alone. It was on the back of Stitch Fix first quarter of fiscal 2021 results, in which it exceeded analysts’ expectations with a 10% year-over-year increase in revenue, which is especially significant given the decline in spending on non-essentials for many consumers.
The company also unexpectedly switched to net income under generally accepted accounting principles (GAAP), although it is still in the red on a non-GAAP (adjusted) basis.
According to the analyst’s estimate, while Stitch Fix could have a bright future (especially in the context of a large recovery in the apparel sector), in the short term its results will be affected by the large investments. which it achieves in a number of areas. This leads to some uncertainty about the profitability of the company, hence the downgrading.
Mid-afternoon on Friday Stitch Fix was slightly higher, currently trading at $ 59.32.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.