In This Article:
The performance of consumer discretionary businesses is closely linked to economic cycles. This sensitive demand profile can cause discretionary stocks to plummet when macro uncertainty enters the fray, and over the past six months, the industry has shed 12.3%. This drawdown was noticeably worse than the S&P 500’s 2.1% decline.
Investors should tread carefully as many companies in this space are also unpredictable because they lack recurring revenue business models. On that note, here are three consumer stocks we’re swiping left on.
Movado (MOV)
Market Cap: $373.6 million
With its watches displayed in 20 museums around the world, Movado (NYSE:MOV) is a watchmaking company with a portfolio of watch brands and accessories.
Why Do We Pass on MOV?
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Products and services have few die-hard fans as sales have declined by 1.4% annually over the last five years
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Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
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Eroding returns on capital suggest its historical profit centers are aging
At $16.80 per share, Movado trades at 0.6x forward price-to-sales. Check out our free in-depth research report to learn more about why MOV doesn’t pass our bar.
Mohawk Industries (MHK)
Market Cap: $6.41 billion
Established in 1878, Mohawk Industries (NYSE:MHK) is a leading producer of floor-covering products for both residential and commercial applications.
Why Do We Think MHK Will Underperform?
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Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
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Underwhelming 3.5% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up
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Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Mohawk Industries is trading at $102.48 per share, or 10x forward P/E. Read our free research report to see why you should think twice about including MHK in your portfolio, it’s free.
eXp World (EXPI)
Market Cap: $1.18 billion
Founded in 2009, eXp World (NASDAQ:EXPI) is a real estate company known for its virtual, cloud-based approach to real estate brokerage.
Why Is EXPI Risky?
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Performance surrounding its transactions has lagged its peers
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Responsiveness to unforeseen market trends is restricted due to its substandard operating profitability
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Negative returns on capital show management lost money while trying to expand the business