Company Name: Stitch Fix Inc
Entry Price: $85.50
Target Price: $120
Projected Yield: 40.30%
Time Line: 3 to 6 months
About Stitch Fix
Stitch Fix is the world's leading online styling service. Its platform creates a customized look for every customer based on their style. The recommendations are based upon professional stylist suggestions and machine learning algorithms. Once the look has been created, the customers can buy the recommended garments and get them shipped to their domicile.
What's the Idea?
Capitalize on a stock that may rise with stable financial performance, competitive business model, and more growth potential.
Buy Stitch Fix Shares >>
Why Trade Stitch Fix?
Reason 1: Competitive Business Model
Last year, the pandemic completely changed the way clothing retailers work, as a large part of the market switched to ecommerce, and this proved good for Stitch Fix. This service works on a subscription basis, although one can also get free recommendations on clothing without buying any subscription. Stitch Fix has some features that may allow it to significantly expand its market share, let's highlight just a few below.
- Choosing clothes for customers is backed not only by professional stylist opinions, but also by AI algorithms. Stitch Fix collects a huge amount of data on customer preferences, which the resulting suggestions are based upon, and this enables exact matching. Thus, both the business efficiency and the customer satisfaction get drastically boosted. Moreover, with more target audience, the amount of the data being processed also increases, which makes the AI even more powerful. Over Q3 and Q4 2020, 80% of customers who used the service for the first time did not ask for refund, which is a great result.
With ten years working in the market, Stitch Fix built a huge logistics network that completely covers the US and the UK, so that any order gets shipped in just three days. Stitch Fix also partnered with a large number of clothing brands and ecommerce websites, thus being able to sell products by over 1,000 brands. This makes it hard for the competition to enter the niche: although there are some other retailers trying to get into this market sector, Stitch Fix is second to none both in terms of logistics and the range of goods.
Reason 2: Confident Financial Performance
Last year proved to be good for Stitch Fix, as the number of active users increased to 3.80M, or by 10.20% compared to 2019. The recommendation quality also got better, which reduced the number of refunds.
As a result, the inventory turnover went up by 5.2x, a decent number if we compare that with LVMH, which got 4.7x, Nike, with 3.4x, Zalando, with 3.5x, or Revolve, with 3.4x. Farfetch is the only better performer here, with a 6.8x increase.
Meanwhile, the yearly earnings grew by 8.50% compared to 2019, and amounted to $1.70B. Despite a loss of $70M in 2020 compared to a $37M profit in 2019, Stitch Fix still has a 45% gross profit margin, which means sustainability. With more operational optimization, the company is quite likely to start getting profits on a stable basis.
Stitch Fix has no debt burden and maintains $388.30M as liquid funds, which adds to the business scalability. In the meantime, the positive operating cash flow reached $42.90M last year, with an FCF at $12M.
As a result, Stitch Fix performs well, financially, and most key numbers are currently going up.
Reason 3: Outlooks and Assessments
It's been a while since Stitch Fix's management team announced positive outlook for both business development and sales, with the latter being expected at +20% to +25% in 2021. In the long term, the adjusted EBITDA margin should reach 11% to 13% against -2% in 2020.
The ratios are currently fine for a growing company, with the Forward P/S at 3.9x. KeyCorp upgraded its target price for Stitch Fix in January, moving it to $95, while Robert W. Baird and Stifel Nicolaus set it at $85 and $83, respectively.
Stitch Fix does have good potential for further development, although there are risks associated with the market volatility.
How to Use the Idea?
- Buy Stitch Fix stock at $85.50.
- Allocate no more than 2% of your portfolio amount. To build a balanced portfolio, you can use recommendations by our analysts.
- Sell the stock when the price is at $120 per share.
How to Buy Stitch Fix Shares?
If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.
After opening an account, you can buy shares in either of the following ways:
Freedom24 Web Platform: : In the Web Terminal section, type SFIX.US (Stitch Fix ticker in the NASDAQ) in the search box, and select STITCH FIX INC-CLASS A in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.
Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will show up, type SFIX.US (Stitch Fix ticker in the NASDAQ) and select STITCH FIX INC-CLASS A in the search results. You will then see the stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.
Buy Stitch Fix shares to capitalize on an in-demand online styling service!
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