Stitch Fix (NASDAQ:SFIX) has had a pretty rocky 2019. The subscription clothes business is certainly an adventurous take on the technology services industry, although a number of investors worry about its longevity. This explains part of the volatility in SFIX stock, which is up more than 37% this year (49 weeks in), but down 13% over the last 52 weeks.
That’s quite a different track record given the fact that only three weeks separate the year-to-date and one-year performance marks. Of course, one includes last year’s fiscal first-quarter results and the other does not.
So when SFIX stock reports this year’s Q1 numbers after the close on Dec. 9, what can investors expect?
SFIX Earnings Preview
Before Stitch Fix reported earnings in December 2018, the stock closed at $25.97. After the report, shares ended the next day at $20.54, down more than 20%. It would bottom near $16 a few weeks later.
Now up at $23, investors will be looking for SFIX stock to put together a post-earnings rally. Particularly as holiday spending has been coming in ahead of forecasts and after a blow-out jobs report on Dec. 6.
For the quarter, estimates call for a loss of 6 cents per share on revenue of $441 million. In-line sales results would represent year-over-year growth of roughly 20.5% for Stitch Fix. However, it would also mean a decline from 10 cents per share in profit in the same quarter from a year ago, as SFIX is expected to swing to a loss.
In regards to the full year, analysts currently expect profit of just 4 cents per share. That’s down from the 36 cents per share in full-year profit from the prior year. It would be encouraging if management could deliver a top- and bottom-line beat and talk up expectations for this year.
The downside here is profit. There wasn’t very much of it last year and it’s expected that there will be even less this year. The upside is that analysts expect SFIX stock to grow sales about 20% this year and next year, and for the company to approach $2 billion in revenue this year.
Trading SFIX Stock
A look at the chart underscores how volatile SFIX stock has been this year. After bottoming near $16 in December after earnings, shares surged over the next few months.
The stock more than doubled by early March, as shares briefly eclipsed $37. I’m not trying to be a history teacher here with Stitch Fix, but the stock followed up with a 40% drop from those highs, followed by a 45% rally to $32 in July, and finally a crushing 47% decline to its October lows.
Again, sorry for the recap, but it’s very important to realize the kind of volatility we’re dealing with here.
Since bottoming in October though, shares have been on a pretty solid trajectory. The stock is holding up over the 20-day and 50-day moving averages, as well as uptrend support (blue line). Now though, it’s contending with the $24 level, while potential downtrend resistance (purple line) and the 200-day moving average loom just overhead.
In other words, a post-earnings breakout over $24.83 — the 200-day moving average — would be noteworthy. A close over this mark puts potentially significant upside on the table. On the upside, bulls may look to targets like the 50% and 61.8% retracements, at $26.89 and $29.44, respectively.
If the post-earnings reaction is not bullish, we need to consider the downside. The first area to watch is the 50-day moving average and uptrend support. This area comes into play near $22. Below puts $20 on the table, followed by range support between $17 and $18.
Keep it simple: A close over the 200-day spells more potential upside. On a pullback, see that $22 holds as support.
Bottom Line on Stitch Fix Stock
Will it work in bulls’ favor? The economy is doing well and SFIX is hopefully learning from some of its errors. Further, the company has positive free cash flow on a trailing basis, $314 million in cash and short-term investments and no long-term debt. Further, current assets of $482.2 million easily top current liabilities of $182.6 million.
However, while revenue growth is forecast to be consistent for the next two years, earnings remains volatile. Further, disappointment is possible in regards to the quarterly numbers.
Let’s see if management can lay out a bullish outlook for the next few quarters in this fiscal year, and see if SFIX stock can either close over the 200-day moving average or hold support.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
