Most consumer discretionary businesses succeed or fail based on the broader economy. Over the past six months, it seems like demand may be facing some headwinds as the industry’s 6.5% return has lagged the S&P 500 by 3.1 percentage points.
While some companies have durable competitive advantages that enable them to grow consistently, the odds aren’t great for the ones we’re analyzing today. Keeping that in mind, here are three consumer stocks we’re swiping left on.
Levi's (LEVI)
Market Cap: $7.68 billion
Credited for inventing the first pair of blue jeans in 1873, Levi's (NYSE: LEVI) is an apparel company renowned for its iconic denim products and classic American style.
Why Do We Steer Clear of LEVI?
- Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 8% for the last two years
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Levi’s stock price of $19.70 implies a valuation ratio of 13.5x forward P/E. To fully understand why you should be careful with LEVI, check out our full research report (it’s free).
Grand Canyon Education (LOPE)
Market Cap: $4.84 billion
Founded in 1949, Grand Canyon Education (NASDAQ: LOPE) is an educational services provider known for its operation at Grand Canyon University.
Why Should You Dump LOPE?
- Demand for its offerings was relatively low as its number of students has underwhelmed
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 7.4% annually
- Free cash flow margin is anticipated to expand by 1.1 percentage points over the next year, providing additional flexibility for investments and share buybacks/dividends
At $175.10 per share, Grand Canyon Education trades at 18.1x forward P/E. Check out our free in-depth research report to learn more about why LOPE doesn’t pass our bar.
Somnigroup (SGI)
Market Cap: $19.21 billion
Established through the merger of Tempur-Pedic and Sealy in 2012, Somnigroup (NYSE: SGI) is a bedding manufacturer known for its innovative memory foam mattresses and sleep products
Why Is SGI Risky?
- Lackluster 14.3% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 1 percentage points over the next year
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Somnigroup is trading at $91.52 per share, or 27.6x forward P/E. If you’re considering SGI for your portfolio, see our FREE research report to learn more.
Stocks We Like More
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
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-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
