Most consumer discretionary businesses succeed or fail based on the broader economy. Thankfully for the industry, demand trends seem to be healthier than other sectors as discretionary stocks have stood firm with a flat return over the past six months
Despite the apparent stability, investors must be mindful as many companies in this space are fads, and only a few will stand the test of time. Keeping that in mind, here are three consumer stocks best left ignored.
Wolverine Worldwide (WWW)
Market Cap: $1.38 billion
Founded in 1883, Wolverine Worldwide (NYSE: WWW) is a global footwear company with a diverse portfolio of brands including Merrell, Hush Puppies, and Saucony.
Why Should You Sell WWW?
- Flat sales over the last five years suggest it must innovate and find new ways to grow
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 7.8% annually
- Free cash flow margin is projected to show no improvement next year
At $16.83 per share, Wolverine Worldwide trades at 11.2x forward P/E. To fully understand why you should be careful with WWW, check out our full research report (it’s free).
Hyatt Hotels (H)
Market Cap: $14.28 billion
Founded in 1957, Hyatt Hotels (NYSE: H) is a global hospitality company with a portfolio of 20 premier brands and over 950 properties across 65 countries.
Why Do We Think H Will Underperform?
- 3.2% annual revenue growth over the last two years was slower than its consumer discretionary peers
- Responsiveness to unforeseen market trends is restricted due to its substandard operating margin profitability
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Hyatt Hotels is trading at $151.63 per share, or 44.6x forward P/E. Check out our free in-depth research report to learn more about why H doesn’t pass our bar.
Lucky Strike (LUCK)
Market Cap: $1.18 billion
Born from the transformation of traditional bowling alleys into modern entertainment destinations, Lucky Strike (NYSE: LUCK) operates bowling alleys and other entertainment venues with upscale amenities, arcade games, and food and beverage services across North America.
Why Should You Dump LUCK?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its stores
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- High net-debt-to-EBITDA ratio of 7× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Lucky Strike’s stock price of $8.61 implies a valuation ratio of 39x forward P/E. Dive into our free research report to see why there are better opportunities than LUCK.
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