Most consumer discretionary businesses succeed or fail based on the broader economy. This sensitive demand profile can cause the industry to underperform when macro uncertainty enters the fray, and over the past six months, its 5.5% return has fallen short of the S&P 500’s 10.5% gain.
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. On that note, here are three consumer stocks that may face trouble.
fuboTV (FUBO)
Market Cap: $316.2 million
Originally launched as a soccer streaming platform, fuboTV (NYSE: FUBO) is a video streaming service specializing in live sports, news, and entertainment content.
Why Are We Hesitant About FUBO?
- Uptick in domestic subscribers indicates the company’s underlying demand is healthy
- Suboptimal cost structure is highlighted by its history of operating margin losses
- Negative free cash flow raises questions about the return timeline for its investments
fuboTV is trading at $10.44 per share, or 39.3x forward P/E. If you’re considering FUBO for your portfolio, see our FREE research report to learn more.
Pool (POOL)
Market Cap: $6.84 billion
Founded in 1993 and headquartered in Louisiana, Pool (NASDAQ: POOL) is one of the largest wholesale distributors of swimming pool supplies, equipment, and related leisure products.
Why Do We Think POOL Will Underperform?
- Sales trends were unexciting over the last five years as its 2.2% annual growth was below the typical consumer discretionary company
- Poor free cash flow margin of 6.9% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Pool’s stock price of $188.23 implies a valuation ratio of 16.5x forward P/E. Read our free research report to see why you should think twice about including POOL in your portfolio.
Marriott (MAR)
Market Cap: $93.93 billion
Founded by J. Willard Marriott in 1927, Marriott International (NASDAQ: MAR) is a global hospitality company with a portfolio of over 7,000 properties and 30 brands, spanning 130+ countries and territories.
Why Do We Avoid MAR?
- Weak revenue per room over the past two years indicates challenges in maintaining pricing power and occupancy rates
- Free cash flow margin is projected to show no improvement next year
- Returns on capital haven’t budged, indicating management couldn’t drive additional value creation
At $360.11 per share, Marriott trades at 28.9x forward P/E. Dive into our free research report to see why there are better opportunities than MAR.
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