3 Consumer Stocks We Think Twice About

Retailers are adapting their business models as technology changes how people shop. Still, secular trends are working against their favor as e-commerce continues to take share from brick and mortars. This puts retail stocks in a tough spot, and over the past six months, the industry’s 1.6% gain has trailed the S&P 500 by 9.9 percentage points.

Investors should tread carefully as many companies in this space can be value traps. On that note, here are three consumer stocks best left ignored.

Monro (MNRO)

Market Cap: $552.4 million

Started as a single location in Rochester, New York, Monro (NASDAQ:MNRO) provides common auto services such as brake repairs, tire replacements, and oil changes.

Why Do We Think MNRO Will Underperform?

1. Ongoing store closures and lackluster same-store sales indicate sluggish demand and a focus on consolidation
2. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
3. Sales were less profitable over the last three years as its earnings per share fell by 29.9% annually, worse than its revenue declines

Monro is trading at $18.41 per share, or 33.5x forward P/E. Dive into our free research report to see why there are better opportunities than MNRO.

Arhaus (ARHS)

Market Cap: $1.32 billion

With an aesthetic that features natural materials such as reclaimed wood, Arhaus (NASDAQ:ARHS) is a high-end furniture retailer that sells everything from sofas to rugs to bookcases.

Why Does ARHS Worry Us?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Subscale operations are evident in its revenue base of $1.36 billion, meaning it has fewer distribution channels than its larger rivals
3. Issuance of new shares over the last three years caused its earnings per share to fall by 13.8% annually while its revenue grew

Arhaus’s stock price of $9.40 implies a valuation ratio of 19.9x forward P/E. Read our free research report to see why you should think twice about including ARHS in your portfolio.

Leslie's (LESL)

Market Cap: $28.71 million

Named after founder Philip Leslie, who established the company in 1963, Leslie’s (NASDAQ:LESL) is a retailer that sells pool and spa supplies, equipment, and maintenance services.

Why Should You Dump LESL?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
2. Free cash flow margin shrank by 8.9 percentage points over the last year, suggesting the company is consuming more capital to stay competitive
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

At $3.14 per share, Leslie's trades at 0.4x forward EV-to-EBITDA. To fully understand why you should be careful with LESL, check out our full research report (it’s free for active Edge members).

High-Quality Stocks for All Market Conditions

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