Stitch Fix Stock Could Jump by 35% as Growth Steadies

Jun 9, 2021 03:49 PM ET
Stitch Fix Stock Could Jump by 35% as Growth Steadies

The Stitch Fix stock price rocketed higher on Tuesday after the company released strong quarterly results and boosted its forward guidance. The stock ended the day at $66.10, slightly lower than the overnight high of $69.

Stitch Fix earnings

Stitch Fix is a fashion retailer with a twist. The company sells clothes through a subscription model. It does this by sending its subscribers a package with clothes every month. These customers then select the clothes and accessories that they want to keep and return the rest. Of course, they only pay for what they keep.

As a result, Stitch Fix was a key beneficiary of the coronavirus pandemic as people embraced online shopping. It has also benefited from millennials who prefer shopping in the comfort of their homes. Between March last year and February this year, Stitch Fix stock was up by almost 1,000%, becoming one of the best performers.

However, as the vaccination drive accelerated, investors sold companies that did well during the pandemic. This pushed the stock to drop by more than 67%. 

On Monday, Stitch Fix delivered strong quarterly results, pushing the stock sharply higher as analysts adjusted their outlooks. The company’s revenue rose by 44% year-on-year in its third quarter to more than $536 million. This happened as the number of active customers jumped by 689,000 to more than 4.1 million. The company attributed this growth partly to its rompers, jumpsuit, and miniskirts sales that jumped by more than 60%.

Stitch Fix also upgraded its forward guidance. It now expects to make revenue of between $540 million and $550 million in the current quarter. Its earnings before interest tax depreciation and amortization (EBITDA) will come in between $15 million and $20 million.

Is Stich Fix stock a buy?

Stitch Fix offers a relatively compelling business model. Its subscribers don’t pay a monthly or annual subscription fee. Instead, they receive a box with clothes and pay for what they keep. Most of these clothes are from well-known brands like Mavi, Ralph Lauren, Toms, and Eileen Fisher, among others. The clothes are also reasonably priced. 

The company has also developed a loyal following, especially among women, who account for most of its sales. The company is also developing a kids business. This simply means that parents can introduce the business to their babies, who will then continue being customers for longer.

Analysts seem impressed by the company. In a note on Tuesday, analysts at Barclays boosted its stock forecast from $48 to $59, which is slightly below the company’s present share price. Other analysts who are bullish on the stock are from Telsey Advisory Group and Keybanc. 

On the other hand, analysts at Morgan Stanley remain bearish in the short term. They point to the fact that the company’s business model could get hit as the economy reopens.

Stitch Fix stock price analysis

Stitch Fix stock price chart

Turning to the daily chart, we see that the Stitch Fix stock price has bounced back after it declined to $37 in May this year. The shares have managed to move above the 50-day and 100-day exponential moving averages and slightly above the 50% Fibonacci retracement level. The pair also seems to be forming a cup and handle pattern, which is usually a bullish sign. 

Therefore, the stock will likely keep rising after the company reports strong earnings. The next key resistance level to watch will be the 23.6% retracement level at $90, which is about 35% above the current level.

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