3 Consumer Stocks with Warning Signs

Consumer staples stocks are solid insurance policies in frothy markets ripe for corrections. But they’re also double-edged swords as they often lag in booming conditions, and this pattern has persisted recently. Over the past six months, the industry has recorded a loss of 1.9%, disappointing since the S&P 500 climbed 7.6%.

Investors should tread carefully as the low switching costs for everyday products mean that not all businesses are created equal. Keeping that in mind, here are three consumer stocks that may face trouble.

Calavo (CVGW)

Market Cap: $473.8 million

A trailblazer in the avocado industry, Calavo Growers (NASDAQ:CVGW) is a pioneering California-based provider of high-quality avocados and other fresh food products.

Why Do We Think CVGW Will Underperform?

1. Sales tumbled by 18.3% annually over the last three years, showing consumer trends are working against its favor
2. Revenue base of $648.4 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
3. Gross margin of 10% is an output of its commoditized products

Calavo is trading at $26.30 per share, or 17.1x forward P/E. Dive into our free research report to see why there are better opportunities than CVGW.

The Marzetti Company (MZTI)

Market Cap: $4.49 billion

Known for its frozen garlic bread and Parkerhouse rolls, The Marzetti Company (NASDAQ:MZTI) sells bread, dressing, and dips to the retail and food service channels.

Why Does MZTI Fall Short?

1. Lackluster 3% annual revenue growth over the last three years indicates the company is losing ground to competitors
2. Projected sales growth of 1.5% for the next 12 months suggests sluggish demand
3. Gross margin of 23.4% is below its competitors, leaving less money to invest in areas like marketing and production facilities

At $163.79 per share, The Marzetti Company trades at 22.3x forward P/E. Read our free research report to see why you should think twice about including MZTI in your portfolio.

Zevia (ZVIA)

Market Cap: $113.9 million

With a primary focus on soda but also a presence in energy drinks and teas, Zevia (NYSE:ZVIA) is a better-for-you beverage company.

Why Does ZVIA Worry Us?

1. Products fail to spark excitement with consumers, as seen in its flat sales over the last three years
2. Smaller revenue base of $162.8 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
3. Poor expense management has led to operating margin losses

Zevia’s stock price of $1.67 implies a valuation ratio of 166.1x forward EV-to-EBITDA. To fully understand why you should be careful with ZVIA, check out our full research report (it’s free).

Stocks We Like More

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