Retailers are evolving to meet the expectations of modern, tech-savvy shoppers. But many seem to be moving too slowly as their demand is lagging, causing the industry to underperform the market - over the past six months, retail stocks have shed 13.6%. This drawdown was worse than the S&P 500’s 5.1% loss.
Investors should tread carefully as many companies in this space can be value traps. On that note, here are three consumer stocks we’re steering clear of.
Floor And Decor (FND)
Market Cap: $7.82 billion
Operating large, warehouse-style stores, Floor & Decor (NYSE:FND) is a specialty retailer that specializes in hard flooring surfaces for the home such as tiles, hardwood, stone, and laminates.
Why Are We Wary of FND?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Subscale operations are evident in its revenue base of $4.46 billion, meaning it has fewer distribution channels than its larger rivals
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its decreasing returns suggest its historical profit centers are aging
Floor And Decor’s stock price of $74 implies a valuation ratio of 36.3x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than FND.
Nordstrom (JWN)
Market Cap: $4.03 billion
Known for its exceptional customer service that features a ‘no questions asked’ return policy, Nordstrom (NYSE:JWN) is a high-end department store chain.
Why Do We Pass on JWN?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Responsiveness to unforeseen market trends is restricted due to its substandard operating profitability
- Low returns on capital reflect management’s struggle to allocate funds effectively
Nordstrom is trading at $24.16 per share, or 11.6x forward price-to-earnings. To fully understand why you should be careful with JWN, check out our full research report (it’s free).
Urban Outfitters (URBN)
Market Cap: $4.76 billion
Founded as a purveyor of vintage items, Urban Outfitters (NASDAQ:URBN) now largely sells new apparel and accessories to teens and young adults seeking on-trend fashion.
Why Are We Hesitant About URBN?
- Muted 6.9% annual revenue growth over the last five years shows its demand lagged behind its consumer retail peers
- Smaller revenue base of $5.55 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- ROIC of 9.5% reflects management’s challenges in identifying attractive investment opportunities
At $51.41 per share, Urban Outfitters trades at 11.8x forward price-to-earnings. If you’re considering URBN for your portfolio, see our FREE research report to learn more.
Stocks We Like More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like 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 Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.