Consumer discretionary businesses are levered to the highs and lows of economic cycles. Thankfully for the industry, demand trends seem to be healthy as discretionary stocks have gained 15.3% over the past six months. This performance has nearly mirrored the S&P 500.
Regardless of these results, investors should tread carefully as many companies in this space are unpredictable because they lack recurring revenue business models. With that said, here is one resilient consumer stock at the top of our wish list and two best left ignored.
Two Consumer Discretionary Stocks to Sell:
VF Corp (VFC)
Market Cap: $6.03 billion
Owner of The North Face, Vans, and Supreme, VF Corp (NYSE: VFC) is a clothing conglomerate specializing in branded lifestyle apparel, footwear, and accessories.
Why Should You Dump VFC?
- Weak constant currency growth over the past two years indicates challenges in maintaining its market share
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
VF Corp is trading at $15.42 per share, or 17.9x forward P/E. Read our free research report to see why you should think twice about including VFC in your portfolio.
AMC Entertainment (AMC)
Market Cap: $1.26 billion
With a profile that was raised due to meme stock mania beginning in 2021, AMC Entertainment (NYSE: AMC) operates movie theaters primarily in the US and Europe.
Why Do We Steer Clear of AMC?
- 1.8% annual revenue growth over the last two years was slower than its consumer discretionary peers
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
AMC Entertainment’s stock price of $2.46 implies a valuation ratio of 1.9x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why AMC doesn’t pass our bar.
One Consumer Discretionary Stock to Watch:
Monarch (MCRI)
Market Cap: $1.75 billion
Established in 1993, Monarch (NASDAQ: MCRI) operates luxury casinos and resorts, offering high-end gaming, dining, and hospitality experiences.
Why Do We Like MCRI?
- Disciplined cost controls and effective management resulted in a strong two-year operating margin of 21.1%
- Incremental sales over the last five years have been highly profitable as its earnings per share increased by 40% annually, topping its revenue gains
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
At $95.86 per share, Monarch trades at 16.8x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
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