3 Consumer Stocks with Open Questions

Consumer discretionary businesses are levered to the highs and lows of 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 1.9%. This drawdown was disheartening since the S&P 500 gained 5.7%.

While some companies have durable competitive advantages that enable them to grow consistently, the odds aren’t great for the ones we’re analyzing today. Taking that into account, here are three consumer stocks best left ignored.

Royal Caribbean (RCL)

Market Cap: $85.13 billion

Established in 1968, Royal Caribbean Cruises (NYSE:RCL) is a global cruise vacation company renowned for its innovative and exciting cruise experiences.

Why Is RCL Not Exciting?

1. Number of passenger cruise days has disappointed over the past two years, indicating weak demand for its offerings
2. Estimated sales growth of 9.5% for the next 12 months implies demand will slow from its two-year trend
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities

Royal Caribbean’s stock price of $313.50 implies a valuation ratio of 18.8x forward P/E. If you’re considering RCL for your portfolio, see our FREE research report to learn more.

Vail Resorts (MTN)

Market Cap: $5.75 billion

Founded by two Aspen, Colorado ski patrol guides, Vail Resorts (NYSE:MTN) is a mountain resort company offering luxury experiences in over 30 locations across the globe.

Why Does MTN Give Us Pause?

1. Annual revenue growth of 1.2% over the last two years was below our standards for the consumer discretionary sector
2. Sluggish trends in its skier visits suggest customers aren’t adopting its solutions as quickly as the company hoped
3. Estimated sales growth of 3.4% for the next 12 months is soft and implies weaker demand

Vail Resorts is trading at $154.84 per share, or 19x forward P/E. To fully understand why you should be careful with MTN, check out our full research report (it’s free).

Harley-Davidson (HOG)

Market Cap: $3.34 billion

Founded in 1903, Harley-Davidson (NYSE:HOG) is an American motorcycle manufacturer known for its heavyweight motorcycles designed for cruising on highways.

Why Do We Think Twice About HOG?

1. Number of motorcycles sold has disappointed over the past two years, indicating weak demand for its offerings
2. Eroding returns on capital suggest its historical profit centers are aging
3. High net-debt-to-EBITDA ratio of 19× increases the risk of forced asset sales or dilutive financing if operational performance weakens

At $27.43 per share, Harley-Davidson trades at 9.7x forward P/E. Read our free research report to see why you should think twice about including HOG in your portfolio.

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