The performance of consumer discretionary businesses is closely linked to economic cycles. Over the past six months, it seems like demand trends may be working against them as the industry’s returns were flat while the S&P 500 was up 7.9%.
A cautious approach is imperative when dabbling in these companies as many also lack recurring revenue characteristics and ride short-term fads. Taking that into account, here are three consumer stocks we’re passing on.
ThredUp (TDUP)
Market Cap: $740.7 million
Founded to revolutionize thrifting, ThredUp (NASDAQ:TDUP) is a leading online fashion resale marketplace offering a wide selection of gently-used clothing and accessories.
Why Do We Steer Clear of TDUP?
- Number of orders has disappointed over the past two years, indicating weak demand for its offerings
- Suboptimal cost structure is highlighted by its history of operating margin losses
- Poor free cash flow margin of -0.5% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
ThredUp’s stock price of $5.71 implies a valuation ratio of 34.2x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why TDUP doesn’t pass our bar.
Sirius XM (SIRI)
Market Cap: $10.05 billion
Known for its commercial-free music channels, Sirius XM (NASDAQ:SIRI) is a broadcasting company that provides satellite radio and online radio services across North America.
Why Do We Think SIRI Will Underperform?
- Lackluster 1% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Free cash flow margin is expected to increase by 1 percentage points next year, suggesting the company will have more capital to invest or return to shareholders
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Sirius XM is trading at $29.52 per share, or 9.5x forward P/E. To fully understand why you should be careful with SIRI, check out our full research report (it’s free).
Royal Caribbean (RCL)
Market Cap: $76.01 billion
Established in 1968, Royal Caribbean Cruises (NYSE:RCL) is a global cruise vacation company renowned for its innovative and exciting cruise experiences.
Why Is RCL Risky?
- Sluggish trends in its passenger cruise days suggest customers aren’t adopting its solutions as quickly as the company hoped
- Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year
- ROIC of 6% reflects management’s challenges in identifying attractive investment opportunities
At $284 per share, Royal Caribbean trades at 16.3x forward P/E. Read our free research report to see why you should think twice about including RCL in your portfolio.
Stocks We Like More
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time.
Find out which stocks our AI platform is flagging this week. See this week’s Strong Momentum stocks — FREE. Get Our Strong Momentum Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.