The performance of consumer discretionary businesses is closely linked to economic cycles. 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 21.3% return was close to the S&P 500’s.
Nevertheless, this stability can be deceiving as many companies in this space lack recurring revenue characteristics and ride short-term fads. On that note, here is one resilient consumer stock at the top of our wish list and two we’re swiping left on.
Two Consumer Discretionary Stocks to Sell:
Boyd Gaming (BYD)
Market Cap: $6.08 billion
Run by the Boyd family, Boyd Gaming (NYSE: BYD) is a diversified operator of gaming entertainment properties across the United States, offering casino games, hotel accommodations, and dining.
Why Does BYD Worry Us?
- Annual revenue growth of 4.8% over the last two years was below our standards for the consumer discretionary sector
- Sales are projected to tank by 5.5% over the next 12 months as demand evaporates
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Boyd Gaming is trading at $77.87 per share, or 10.3x forward P/E. If you’re considering BYD for your portfolio, see our FREE research report to learn more.
Newmark (NMRK)
Market Cap: $3.15 billion
Founded in 1929, Newmark (NASDAQ: NMRK) provides commercial real estate services, including leasing advisory, global corporate services, investment sales and capital markets, property and facilities management, valuation and advisory, and consulting.
Why Do We Avoid NMRK?
- Lackluster 10.3% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Low returns on capital reflect management’s struggle to allocate funds effectively
At $17.48 per share, Newmark trades at 10.3x forward P/E. To fully understand why you should be careful with NMRK, check out our full research report (it’s free for active Edge members).
One Consumer Discretionary Stock to Watch:
DraftKings (DKNG)
Market Cap: $15.19 billion
Getting its start in daily fantasy sports, DraftKings (NASDAQ: DKNG) is a digital sports entertainment and gaming company.
Why Do We Like DKNG?
- Increase in monthly unique players shows customers are eagerly embracing its offerings
- Expected revenue growth of 24.5% for the next year suggests its market share will rise
- Free cash flow margin is anticipated to expand by 5 percentage points over the next year, providing additional flexibility for investments and share buybacks/dividends
DraftKings’s stock price of $30.61 implies a valuation ratio of 24.4x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
Stocks We Like Even More
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