Stitch Fix Inc (NASDAQ:SFIX) finds itself in a dubiously distinct situation. Despite SFIX stock being one of the best-performing investments last week when it jumped 26.5% on Friday, shares are still down almost 4% year-to-date. Obviously, you can get a sense of just how frustrating being a Stitch Fix speculator has been.
At the same time, a near-30% swing on a single trading session is worthwhile news. The broader markets are still lackluster. It was only just recently that the benchmark Dow Jones Industrial Average firmly entered into positive territory for the year. Even then, we’re only talking about a 2% move. The bottom line? Investors will easily take double-digit returns from any sector.
Not only that, the bullishness toward SFIX stock appears fundamentally sound. The subscription-based personalized apparel maker delivered well beyond consensus expectations for its third quarter fiscal 2018 earnings report.
Against an earnings per share target of three cents, Stitch Fix hit a whopping nine cents. This performance contrasted sharply from the year-ago quarter, where the company reported a 38-cent loss.
On the sales front, Stitch Fix hauled in $316.7 million. This was up 3.3% from the consensus $306.5 million forecast. More importantly, management emphasized that the organization experienced significant growth in paying subscribers, up 30% from a year ago to 2.7 million.
Finally, the company carries significant financial momentum. In 2018, Stitch Fix has booked 15-cent per share profits, a 650% increase from the same period in the prior fiscal year. No wonder why the markets enthusiastically spiked SFIX stock.
However, appreciating a stellar performance and buying into it are two different concepts. While I respect the company’s hustle, I’m not sure if SFIX stock is worth the risk.
Stitch Fix Has an Awesome But Irrelevant Technology
Perhaps the biggest appeal for SFIX stock is the company’s emphasis on analytics. According to its S1 filing, Stitch Fix employed over 75 data scientists, with several commanding doctorate degrees. That’s a comparatively large pool of expert numbers geeks for what is essentially a fashion firm.
But supposedly, the algorithm-driven team allows the company to adapt quickly to fickle fashion trends. With “big data” becoming more than just a buzzword, it’s only inevitable that computers will tell us how to dress.
But here’s the thing — fashion is extremely fickle. This is the one industry that is absolutely levered toward the artistic realm. No opportunity to utilize scientific methods exist. Inevitably, this tough dynamic makes SFIX stock a gimmicky investment.
If you’re considering SFIX stock, consider this instead: experts utilizing data garnered from decades of behavioral analyses were virtually certain that Hillary Clinton would win the presidency. They called a few states correctly, but overall, their prognostications were disastrous.
Forbes contributor Andria Cheng had an instructive take on Stitch Fix. She wrote:
“I asked a friend of mine for her take. After trying the service four times since November, she told me she canceled in March. Why? Out of four boxes and a total of 20 items she received, there was only one pair of $88 pants she really liked — and was willing to pay for.”
“‘Honestly the curation for Stitch Fix wasn’t great,’ my friend said, adding she thought a lot of things Stitch Fix selected for her were too pricey. ‘It gave me grandma-looking stuff. Other times it was too sexy for work.'”
An Interesting Concept Won’t Be Enough for SFIX Stock
Is the above story anecdotal? It undeniably is. And normally, I wouldn’t use anecdotes to form a central part of my investing thesis. However, is there a more subjective industry than fashion? What literally looks like junk to one person is another person’s gold.
What’s not so anecdotal is that SFIX stock has largely been a disappointment. Sure, the company is up nearly 66% from its initial public offering. It obviously beats the devastation that is Blue Apron Holdings Inc (NYSE:APRN), an organization with a similar business strategy. But since December of last year, shares have been mostly flat to declining.
I also don’t like what I’m seeing from trendy fashion retailers, like Gap Inc (NYSE:GPS) and Abercrombie & Fitch Co. (NYSE:ANF). Gap is down for the year and has been trending negatively throughout 2018. ANF is up big on a YTD basis, but it’s on the decline since mid-April.
Fashion is a cruel industry for any competitor. I like the idea of big data, but I think it’s a big mistake to blindly buy SFIX stock. Stitch Fix needs more than just a questionably effective algorithm to survive, let alone thrive.