Bargain Basement Prices For Stitch Fix, Inc
Price action in Stitch Fix (NASDAQ: SFIX) has been wild over the past two years, first taking the stock up to all-time highs on pandemically-inspired tailwinds then back down to rock bottom pricing as tough comps, inflation, and supply-chain headwinds cut into the results. Now, with the stock down more than 90% from the post-pandemic high, it looks like those tides are turning once again. The Q4 results were OK enough but weak guidance caused the market to move sharply lower in what appears to be capitulation. In the days since the bulls appear to have regained their footing and look ready to try for a move higher if not a full reversal in the market. This is worth noting because the short-interest on this stock is pushing 20% and more than high enough to support a nice little short-covering rally if not an outright short-squeeze.
There is also a notable change in the insider and institutional activity that should be noted as well. At last glance, the insiders and institutions were selling this stock but that trend changed late in 2021. Since then, the insiders have purchased about 4.75% of the market cap and the insiders another 12% bringing total insider and institutional holdings to 27% and 67% respectively. These numbers make this a tightly held stock and one whose ownership is on the rise, another factor that will help put a bottom in the stock and add pressure to the short-sellers.
Stitch Fix Falls On Weak Guidance
Stitch Fix had an OK enough quarter but growth was weak and the outlook for the full year is a bit less than tepid. The top-line revenue of $516.7 million is up 2.5% from last year and beat the consensus estimates but by a very small 40 basis points. The revenue gains are driven by a 4% increase in active clients and an 18% increase in revenue per client that may have been higher if not for issues with the Freestyle program. The Freestyle program is an upsell for existing clients and the company says it is having a hard time onboarding and converting the business. On the bottom line, the net loss of $0.28 is $0.02 better than expected.
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Turning to the guidance, the company lowered its guidance for the full year while pointing to weak client acquisition numbers in the first half. The company is now expecting revenue for the full year to be flat to slightly down with Q1 results in the range of $485 to $500 million versus the $558 analysts' consensus. In our view, with gas prices topping $4.50 locally, we see downside risk in the new guidance.
The analysts still see upside potential in the stock although their price targets are in freefall. The consensus rating of 16 sell-side analysts is a firm Hold with a price target near $20.50. This target is more than 80% above the new low but has been trending lower in all three comparisons we track. The consensus is down $56 in the last year with $13 of that in the wake of the earnings report. Fully 10 of the analysts covering the stock came out with reduced price targets and even a few downgrades. The consensus rating remains a firm Hold which to us suggests it’s worth owning at current levels if not in great quantities.
The Technical Outlook: Capitulation In Stitch Fix
Price action in Stitch Fix fell hard in the wake of the earnings report but has since reestablished the pre-release price levels. The move bears the hallmarks of capitulation and the beginning of short-covering so could result in a rebound in prices if not an actual reversal. In the near-term, price action may move up to the $14.50 level before hitting significant resistance. If the market can get above that level a more pronounced rebound could follow. If gains are capped at the $14.50 level or lower we would expect to see price action trend sideways until the next reporting season unless the shorts dump more shares on the market. In that case, the price action could move even lower.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Stitch Fix (SFIX) | $2.25 | +3.7% | N/A | -2.18 | Reduce | $3.16 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
