Most consumer discretionary businesses succeed or fail based on the broader economy. Over the past six months, it seems like demand trends may be working against them as the industry’s returns were flat while the S&P 500 was up 12%.
Investors should tread carefully as many companies in this space are also unpredictable because they lack recurring revenue business models. Taking that into account, here are three consumer stocks we would avoid.
Peloton (PTON)
Market Cap: $2.34 billion
Started as a Kickstarter campaign, Peloton (NASDAQ: PTON) is a fitness technology company known for its at-home exercise equipment and interactive online workout classes.
Why Should You Sell PTON?
- Sluggish trends in its connected fitness subscribers suggest customers aren’t adopting its solutions as quickly as the company hoped
- Subpar operating margin of 2.5% constrains its ability to invest in process improvements or effectively respond to new competitive threats
- Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year
Peloton is trading at $5.34 per share, or 15.4x forward P/E. To fully understand why you should be careful with PTON, check out our full research report (it’s free).
Accel Entertainment (ACEL)
Market Cap: $945.1 million
Established in Illinois, Accel Entertainment (NYSE:ACEL) is a provider of electronic gaming machines and interactive amusement terminals to bars and entertainment venues.
Why Do We Think ACEL Will Underperform?
- Number of video gaming terminals sold has disappointed over the past two years, indicating weak demand for its offerings
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $11.65 per share, Accel Entertainment trades at 11x forward P/E. Read our free research report to see why you should think twice about including ACEL in your portfolio.
Acushnet (GOLF)
Market Cap: $5.07 billion
Producer of the acclaimed Titleist Pro V1 golf ball, Acushnet (NYSE:GOLF) is a design and manufacturing company specializing in performance-driven golf products.
Why Do We Avoid GOLF?
- Lackluster 5.1% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Free cash flow margin is expected to remain in place over the coming year
- Unchanged returns on capital make it difficult for the company’s valuation multiple to re-rate
Acushnet’s stock price of $86.87 implies a valuation ratio of 20.1x forward P/E. Dive into our free research report to see why there are better opportunities than GOLF.
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