3 Consumer Stocks We Steer Clear Of

Consumer discretionary businesses are levered to the highs and lows of economic cycles. Thankfully for the industry, all signs are pointing up as discretionary stocks have gained 41.3% over the past six months, beating the S&P 500’s 34.7% return.

Although these companies have produced results lately, investors must be mindful because many are fads and only a few will stand the test of time. With that said, here are three consumer stocks we’re steering clear of.

Comcast (CMCSA)

Market Cap: $113 billion

Formerly known as American Cable Systems, Comcast (NASDAQ:CMCSA) is a multinational telecommunications company offering a wide range of services.

Why Should You Sell CMCSA?

1. Performance surrounding its domestic broadband customers has lagged its peers
2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2%
3. Underwhelming 8.6% return on capital reflects management’s difficulties in finding profitable growth opportunities

At $30.69 per share, Comcast trades at 7.1x forward P/E. Read our free research report to see why you should think twice about including CMCSA in your portfolio.

Bright Horizons (BFAM)

Market Cap: $5.66 billion

Founded in 1986, Bright Horizons (NYSE:BFAM) is a global provider of child care, early education, and workforce support solutions.

Why Should You Dump BFAM?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Estimated sales growth of 7.6% 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

Bright Horizons is trading at $99.59 per share, or 22.1x forward P/E. Dive into our free research report to see why there are better opportunities than BFAM.

American Outdoor Brands (AOUT)

Market Cap: $102.5 million

Spun off from Smith and Wesson in 2020, American Outdoor Brands (NASDAQ:AOUT) is an outdoor and recreational products company that offers outdoor and shooting sports products but does not sell firearms themselves.

Why Do We Think AOUT Will Underperform?

1. Muted 2.6% annual revenue growth over the last five years shows its demand lagged behind its consumer discretionary peers
2. Earnings per share have contracted by 34.3% annually over the last four years, a headwind for returns as stock prices often echo long-term EPS performance
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

American Outdoor Brands’s stock price of $8.11 implies a valuation ratio of 77.2x forward P/E. Check out our free in-depth research report to learn more about why AOUT doesn’t pass our bar.

Stocks We Like More

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