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Analyst Read: Stitch Fix

Is $SFIX a good investment?
(rafapress)
(rafapress)
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Stitch Fix is an online personalized styling service company in the U.S. and U.K.

  • They send personalized shipments of apparel, shoes, and accessories, hand-selected by Stitch Fix stylists and delivered to our clients’ homes.
  • After receiving a package (“Fix”), clients purchase the items they want to keep and return the other items. In exchange, Stitch Fix charges a styling fee.
  • U.S. clients may purchase an annual Style Pass, which offers unlimited styling for the year for $49.
  • Customers can now also buy clothes directly.

Stitch Fix ($SFIX) reported earnings yesterday and the stock has jumped 37%, from $35 to $49 per share. It looks like much of this pop was from a short squeeze.

  • The company beat Bloomberg estimates on net revenues by 2% and said they expect to end the year with 20-25% growth versus 2019. This implies an acceleration of growth in the back half of 2020 to 30-40%, so the company is clearly regaining some momentum.
  • Stitch Fix saw gross margins decrease by 0.6% because of higher shipping expenses. Analysts expect shipping to remain challenging, as bottlenecks and delays have impacted online sales across the board.
  • It has been aggressively investing in tech talent and stylists this quarter. In addition, Stitch Fix plans to raise advertising spend to 11%-13% of revenue versus 7.2% in the year ago quarter given their newly developed capability to target intent based shopping, which is typical during the Holiday season, and which the company wasn’t able to participate in the past. 

Deutsche Bank raised its price target on $SFIX stock to $54 per share.

  • They’re valuing $SFIX based on 2.0x Enterprise Value (EV) to estimated 2023 Revenue
  • This represents 30x EV/EBITDA and 35x P/E.

JO’s Take: 

  • This business seems too niche for me to be interested in it, especially since the stock has popped right back to “fairly valued”. 
  • Shipments of styled clothes to people’s homes seems vulnerable to competitive risks and a service that can easily lose consumer mindshare.
  • As a user of both Blue Apron and Hellofresh, I was bearish on Blue Apron ($APRN) upon IPO for similar reasons and it’s done terribly. But Hellofresh (HFG:GR) has done very well by taking market share, especially during the pandemic.
  • StitchFix might dominate and even expand this niche, but it looks fully valued for now. I also don’t know if I could have the confidence on and it’s impossible for me to have confidence in them taking market share from direct to consumer (“DTC”) brands as a middleman retailer.
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