The performance of consumer discretionary businesses is closely linked to economic cycles. Lately, it seems like demand trends have worked in their favor as the industry has returned 20% over the past six months, outpacing S&P 500 by 4.6 percentage points.
Regardless of these results, investors should tread carefully as many companies in this space are unpredictable because they lack recurring revenue business models. With that said, here are three consumer stocks we’re swiping left on.
Somnigroup (SGI)
Market Cap: $18.94 billion
Established through the merger of Tempur-Pedic and Sealy in 2012, Somnigroup (NYSE: SGI) is a bedding manufacturer known for its innovative memory foam mattresses and sleep products
Why Do We Steer Clear of SGI?
- Lackluster 14.3% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 1 percentage points
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $92.07 per share, Somnigroup trades at 28.4x forward P/E. Check out our free in-depth research report to learn more about why SGI doesn’t pass our bar.
MasterCraft (MCFT)
Market Cap: $302.8 million
Started by a waterskiing instructor, MasterCraft (NASDAQ: MCFT) specializes in designing, manufacturing, and selling sport boats.
Why Do We Think MCFT Will Underperform?
- Number of boats sold has disappointed over the past two years, indicating weak demand for its offerings
- Low free cash flow margin of 11.1% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
MasterCraft is trading at $18.59 per share, or 14.6x forward P/E. To fully understand why you should be careful with MCFT, check out our full research report (it’s free for active Edge members).
Bark (BARK)
Market Cap: $116.8 million
Making a name for itself with the BarkBox, Bark (NYSE: BARK) specializes in subscription-based, personalized pet products.
Why Do We Avoid BARK?
- 9.8% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Bark’s stock price of $0.69 implies a valuation ratio of 27.6x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including BARK in your portfolio.
High-Quality Stocks for All Market Conditions
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
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