Most consumer discretionary businesses succeed or fail based on the broader economy. Unfortunately, the industry’s recent performance suggests demand may be slowing as discretionary stocks’ 3.1% return over the past six months has trailed the S&P 500 by 5.5 percentage points.
While some companies have durable competitive advantages that enable them to grow consistently, the odds aren’t great for the ones we’re analyzing today. With that said, here are three consumer stocks that may face trouble.
Laureate Education (LAUR)
Market Cap: $5.31 billion
Founded in 1998 by Douglas L. Becker and based in Miami, Laureate Education (NASDAQ: LAUR) is a global network of higher education institutions.
Why Should You Dump LAUR?
- Demand for its offerings was relatively low as its number of enrolled students has underwhelmed
- Annual earnings per share growth of 4.2% underperformed its revenue over the last five years, showing its incremental sales were less profitable
- Free cash flow margin is not anticipated to grow over the next year
Laureate Education’s stock price of $36.39 implies a valuation ratio of 18x forward P/E. Check out our free in-depth research report to learn more about why LAUR doesn’t pass our bar.
1-800-FLOWERS (FLWS)
Market Cap: $271.1 million
Founded in 1976, 1-800-FLOWERS (NASDAQ: FLWS) is an online retailer of flowers, gifts, and gourmet foods, serving customers globally.
Why Do We Avoid FLWS?
- Products and services have few die-hard fans as sales have declined by 5.5% annually over the last five years
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $3.59 per share, 1-800-FLOWERS trades at 0.2x forward price-to-sales. Read our free research report to see why you should think twice about including FLWS in your portfolio.
H&R Block (HRB)
Market Cap: $4.55 billion
Founded in 1955 by brothers Henry W. Bloch and Richard A. Bloch, H&R Block (NYSE: HRB) is a tax preparation company offering professional tax assistance and financial solutions to individuals and small businesses.
Why Should You Sell HRB?
- Annual sales declines of 2.1% for the past five years show its products and services struggled to connect with the market
- Earnings growth underperformed the sector average over the last five years as its EPS grew by just 8.8% annually
- Waning returns on capital imply its previous profit engines are losing steam
H&R Block is trading at $34.00 per share, or 1.1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than HRB.
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