Stitch Fix (NASDAQ: SFIX) is a data-driven technology company that provides customized clothing styles for its customers, sent to them on a regular basis. Its technology is what sets it apart from any other company with the potential to change the fashion and apparel company for the better. Here are three reasons why I’m bullish on Stitch Fix.
1. Growing Industry Trend & Data-Driven Technology
Online retail has become the new norm, as displayed by the rise of companies such as Amazon (NASDAQ: AMZN) and Shopify (NYSE: SHOP).
Furthermore, when it comes to online sales for fashion, just look at the growing trends in the e-commerce fashion industry in terms of online sales and the number of sales that come from mobile devices. Just ask Nike (NYSE: NKE), whose digital sales have jumped a whopping 36% in 2019.
According to the Statista report on the fashion industry, online sales will continue growing at an annual compound rate of 10.6% and are expected to reach at least $713 billion by the year 2022, up from $533 billion in 2018.
If that doesn’t have “invest in online fashion” written all over it, I don’t know what does. So, why Stitch Fix? Well aside from it being in a rapidly growing industry, its data-driven technology allows it to customize clothing styles unique to each customer. In fact, Stitch Fix may be considered more of a “tech” company than being in the fashion industry.
Simply put, the fashion industry is going online and Stitch Fix is winning the race due to it’s second to none data-driven technology that makes user experiences unique, personal, and exciting.
2. Major Growth Opportunities
Stitch Fix’s main market is women’s fashion, with a fast-growing market of men’s fashion and children’s clothing. According to its March 2020 investor presentation, online sales for the fashion and apparel industry as a whole in 2019 were 25.2% and expected to grow to become 40.3% by the year 2024.
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Combine the growing online sales for the fashion and apparel industry with Stitch Fix’s data-driven technology that can accurately predict what client will purchase which item of clothing within 63% accuracy, and it becomes even more clear that Stitch Fix is in an excellent position for a major growth opportunity.
Coming from a paying customer of Stitch Fix, it is anything but a “women’s” brand anymore. I’m a male in his early thirties and look forward to receiving my “Fix” every month and am AMAZED time after time at how accurate their clothing picks are, and at how many new and likable styles I discover that I otherwise would have never considered. I can’t be the only male that thinks this, and it’s only a matter of time before it spreads.
If this data-driven tech company continues to evolve with the constant incoming data on clothing preferences for men, women, and children of all ages and body types, this could be a potential “ten-bagger” as Peter Lynch would say.
Perhaps the “cherry on top” of the ice cream sundae for Stitch Fix is the fact that they’re also solving consumer problems. As quoted by an article by Fast Company, “Stitch Fix is using its data prowess across every aspect of its business to reinvent the $334 billion U.S. apparel industry. For consumers, it’s solving the discovery problem exacerbated by the endless sea of product online…”
3. Cash Heavy With Little Debt
A company can have a great product or service, but without sound financials, there is no telling how far it will last. Thankfully, Stitch Fix is sitting on about $300 million in cash, with just under half of that in debt of $149 million. Given a market cap of roughly $2 billion, its cash and debt are in healthy condition for a growing company.
Stitch Fix Laid Off 1,400 Employees. Is This Bad?
Is Stitch Fix considered a good investment even after it recently laid off 1,400 of its stylists?
The COVID-19 pandemic has affected thousands of families and businesses worldwide. I think it’s safe to say that fashion and apparel may not be the first item on a family’s shopping list when times get tough.
I think the real problem is found in not addressing obstacles up front, and not acting on them head on. Consider the opposite scenario; would you invest in a company paying for employees that a) they can’t afford, or b) may not be needed due to the lower transaction volumes?
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Contributing Writer at MyWallSt
Cameron Williams is a contributing writer here at MyWallSt and focuses on finance and investment-related topics.