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.
Image source: Getty Images.
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.