Is Stitch Fix Stock the Right Fit for a Speculative Play?

Stitch Fix is looking for growth as a revolutionary stock in the retail market

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Stitch Fix, Inc. (NASDAQ:SFIX) is an online clothing and fashion company that provides a personal styling service in the U.S. This service uses professional stylists and an algorithm that constantly adapts to the customers feedback and personal preferences. Stitch Fix was founded in 2011 and went public in 2017. Since its initial public offering (IPO), the stock has more than doubled in value.

However, SFIX has seen a lot of volatility in its short history as a public company. The  stock climbed above the $50 range around two years ago, but has also explored lows in $10 area last March. The shares are currently up about 28% year-to-date, but that is not the level of growth expected from an innovative company like this. Let's evaluate the fundamentals behind SFIX stock and assess its true growth potential.

Stitch Fix has a market cap of $3.43 billion and a book value of $3.87 per share according to the most recent quarterly data. Its price-to-book value currently stands at 8.18. The company has a massive trailing price-earnings (P/E) ratio of 82.13, and no forward P/E ratio.

Stitch Fix has missed expectations on its last two earnings reports. Most recently, the company missed their quarterly earnings target by $0.28, reporting a loss of -$0.44 instead of the expected -$0.16 hit. Pre-COVID,  Stitch Fix beat earnings in the first quarter of 2020 and in the final quarter of 2019 by margins of $0.05 and $0.06, respectively. In the company's upcoming earnings report --set for after-the-close on Dec. 1 -- Stitch Fix is expected to report a loss of 20 cents, resuming its upward trajectory from the first quarter of this year.

Revenue has grown by more than $100 million annually for the past four years. In 2018, Stitch Fix grew revenue by roughly $250 million. In 2019, the company grew revenue by $350 million. Despite the decrease in revenue achieved in the last two quarters, Stitch Fix still grew revenue by $134 million in 2020.

The company’s net income has been largely inconsistent over last four years. In the last three fiscal quarters, Stitch Fix has reported a decline in net income. Stitch Fix currently has $286.49 million in cash and $164.51 million in total debt. The company’s balance sheet holds $769.43 million in total assets and $368.39 million in total liabilities. Stitch Fix has $401.04 million in total equity on the balance sheet.

In conclusion, SFIX stock is very much a speculative play for investors at this point. However, as traditional brick and mortar clothing companies are shuffling to shift their businesses to online sales, Stitch Fix already has a huge advantage due to its unique service that is already online-based (and, thus, COVID-friendly). Furthermore, the company’s consistently growing revenue are a sign that there is, in fact, a demand for the service provided. This indicates that the company is likely to continue growing its customer base.

The company carries a surprisingly good balance sheet, despite its short history. Stitch Fix has the ability to pay off its total debt with the cash it has available and still have $122 million left over on its balance sheet. Ultimately, the company has a promising business model and the strong leadership required for growth. Stitch Fix could likely start to see the growth its innovation demands sooner rather than later.


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