Retailers are evolving to meet the expectations of modern, tech-savvy shoppers. Digitization has been one of the keys to staying competitive against e-commerce rivals, a move that has enabled the industry to grow same-store sales. Consequently, retail stocks have climbed 6.8% over the past six months, nearly mirroring the S&P 500.
Nevertheless, investors should tread carefully as many companies will light cash on fire by opening new locations without the proper justifications. On that note, here are three consumer stocks we’re passing on.
Macy's (M)
Market Cap: $6.59 billion
With a storied history that began with its 1858 founding, Macy’s (NYSE: M) is a department store chain that sells clothing, cosmetics, accessories, and home goods.
Why Are We Out on M?
- Ongoing store closures and lackluster same-store sales indicate sluggish demand and a focus on consolidation
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term
Macy's is trading at $25.33 per share, or 10.9x forward P/E. Read our free research report to see why you should think twice about including M in your portfolio.
Bath and Body Works (BBWI)
Market Cap: $3.79 billion
Spun off from L Brands in 2020, Bath & Body Works (NYSE: BBWI) is a personal care and home fragrance retailer where consumers can find specialty shower gels, scented candles for the home, and lotions.
Why Does BBWI Worry Us?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
- Earnings growth over the last three years fell short of the peer group average as its EPS only increased by 4.5% annually
Bath and Body Works’s stock price of $21.30 implies a valuation ratio of 7.6x forward P/E. Check out our free in-depth research report to learn more about why BBWI doesn’t pass our bar.
Tractor Supply (TSCO)
Market Cap: $16.39 billion
Started as a mail-order tractor parts business, Tractor Supply (NASDAQ: TSCO) is a retailer of general goods such as agricultural supplies, hardware, and pet food for the rural consumer.
Why Does TSCO Give Us Pause?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 2.6% over the last three years was below our standards for the consumer retail sector
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Widely-available products (and therefore stiff competition) result in an inferior gross margin of 36.4% that must be offset through higher volumes
At $29.87 per share, Tractor Supply trades at 13.7x forward P/E. To fully understand why you should be careful with TSCO, check out our full research report (it’s free).
Stocks We Like More
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
