1 Consumer Stock on Our Watchlist and 2 We Turn Down

Retailers are overhauling their operations as technology redefines the shopping experience. One initiative that has proven effective is the expansion into e-commerce, which has helped the industry sustain its same-store sales growth and keep pace with the S&P 500’s 6% return over the past six months.

Regardless of these results, a cautious approach is imperative as many companies in this space can be value traps. Keeping that in mind, here is one consumer stock boasting a durable advantage and two best left ignored.

Two Consumer Retail Stocks to Sell:

Lithia (LAD)

Market Cap: $7.31 billion

With a strong presence in the Western US, Lithia Motors (NYSE:LAD) sells a wide range of vehicles, including new and used cars, trucks, SUVs, and luxury vehicles from various manufacturers.

Why Is LAD Not Exciting?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
2. Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 15.5%
3. High net-debt-to-EBITDA ratio of 8× could force the company to raise capital at unfavorable terms if market conditions deteriorate

At $301.32 per share, Lithia trades at 8.4x forward P/E. To fully understand why you should be careful with LAD, check out our full research report (it’s free).

BJ's (BJ)

Market Cap: $13.45 billion

Appealing to the budget-conscious individual shopping for a household, BJ’s Wholesale Club (NYSE:BJ) is a membership-only retail chain that sells groceries, appliances, electronics, and household items, often in bulk quantities.

Why Are We Hesitant About BJ?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
2. Gross margin of 18.5% is below its competitors, leaving less money for marketing and promotions
3. Operating margin of 3.9% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments

BJ's is trading at $102.60 per share, or 22.5x forward P/E. If you’re considering BJ for your portfolio, see our FREE research report to learn more.

One Consumer Retail Stock to Watch:

Boot Barn (BOOT)

Market Cap: $5.72 billion

With a strong store presence in Texas, California, Florida, and Oklahoma, Boot Barn (NYSE:BOOT) is a western-inspired apparel and footwear retailer.

Why Are We Positive On BOOT?

1. Aggressive strategy of rolling out new stores to gobble up whitespace is prudent given its same-store sales growth
2. Comparable store sales rose by 4.8% on average over the past two years, demonstrating its ability to drive increased spending at existing locations
3. Demand for the next 12 months is expected to accelerate above its three-year trend as Wall Street forecasts robust revenue growth of 14.4%

Boot Barn’s stock price of $187.99 implies a valuation ratio of 23x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.

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