Stitch Fix (SFIX): Buy, Sell, or Hold Post Q3 Earnings?

Over the past six months, Stitch Fix has been a great trade, beating the S&P 500 by 11.5%. Its stock price has climbed to $5.16, representing a healthy 23% increase. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is there a buying opportunity in Stitch Fix, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Do We Think Stitch Fix Will Underperform?

We’re happy investors have made money, but we're cautious about Stitch Fix. Here are three reasons we avoid SFIX and a stock we'd rather own.

1. Decline in Active Clients Points to Weak Demand

Revenue growth can be broken down into changes in price and volume (for companies like Stitch Fix, our preferred volume metric is active clients). While both are important, the latter is the most critical to analyze because prices have a ceiling.

Stitch Fix’s active clients came in at 2.31 million in the latest quarter, and over the last two years, averaged 14.3% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Stitch Fix might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability.

2. Breakeven Free Cash Flow Limits Reinvestment Potential

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Stitch Fix broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Stitch Fix’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

We see the value of companies helping consumers, but in the case of Stitch Fix, we’re out. With its shares beating the market recently, the stock trades at $5.16 per share (or a forward price-to-sales ratio of 0.6×). The market typically values companies like Stitch Fix based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy. Let us point you toward one of our all-time favorite software stocks.

Stocks We Like More Than Stitch Fix

The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.