Most consumer discretionary businesses succeed or fail based on the broader economy. This sensitive demand profile can lead to some stock price volatility, but over the past six months, the industry has stayed on track as its 6.2% return was close to the S&P 500’s.

Regardless of these results, investors should tread carefully as many companies in this space are unpredictable because they lack recurring revenue business models. Taking that into account, here are three consumer stocks we’re passing on.

Steven Madden (SHOO)

Market Cap: $2.1 billion

As seen in the infamous Wolf of Wall Street movie, Steven Madden (NASDAQ:SHOO) is a fashion brand famous for its trendy and innovative footwear, appealing to a young and style-conscious audience.

Why Does SHOO Fall Short?

1. 3.7% annual revenue growth over the last two years was slower than its consumer discretionary peers
2. Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 6.8% annually
3. Poor free cash flow margin of 9% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends

Steven Madden’s stock price of $29 implies a valuation ratio of 11.3x forward price-to-earnings. Read our free research report to see why you should think twice about including SHOO in your portfolio, it’s free.

WeightWatchers (WW)

Market Cap: $42.84 million

Known by many for its old cable television commercials, WeightWatchers (NASDAQ:WW) is a wellness company offering a range of products and services promoting weight loss and healthy habits.

Why Do We Pass on WW?

1. Sluggish trends in its members suggest customers aren’t adopting its solutions as quickly as the company hoped
2. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

WeightWatchers is trading at $0.55 per share, or 0.3x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than WW.

Guess (GES)

Market Cap: $512 million

Flexing the iconic upside-down triangle logo with a question mark, Guess (NYSE:GES) is a global fashion brand known for its trendy clothing, accessories, and denim wear.

Why Do We Think GES Will Underperform?

1. Annual revenue growth of 2% over the last five years was below our standards for the consumer discretionary sector
2. Estimated sales growth of 3.7% for the next 12 months implies demand will slow from its two-year trend
3. ROIC of 10.1% reflects management’s challenges in identifying attractive investment opportunities

At $10.30 per share, Guess trades at 3.9x forward price-to-earnings. Check out our free in-depth research report to learn more about why GES doesn’t pass our bar.

Stocks We Like More

With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.

Put yourself in the driver’s seat by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.