Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why Stitch Fix Inc. Stock Soared 42% in August

By Jeremy Bowman - Sep 5, 2018 at 3:02PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of the subscription-based styling service seemed to be propelled by strong quarterly reports by its brick-and-mortar peers.

What happened

Shares of Stitch Fix Inc. ( SFIX 0.96% ) were surging last month after the personalized styling service rode momentum from an analyst endorsement and a bullish wave in retail featuring strong quarterly results from a number of apparel retailers. Overall, retail sales were also up 6.3% from May to July versus year-ago levels, showing consumer spending is rapidly increasing. 

Though there was little direct news out on the company in the quarter, the stock still soared 42%, according to data from S&P Global Market Intelligence, building on momentum from earlier in the year. 

As the chart below shows, Stitch Fix stock moved higher throughout much of the month. 

SFIX Chart

SFIX data by YCharts.

So what

The only real direct news driving Stitch Fix shares higher in the period was SunTrust's initiating coverage of the company with a buy on Aug. 10, sending the stock up 5% that day.

A woman opens an order from Stitch Fix.

Image source: Stitch Fix.

Analysts at the bank said: "We think this nascent segment will garner more attention from investors, with Stitch Fix the leading pure play in it. Stitch Fix should continue to outgrow expectations over the short and medium term, [and its] valuation remains attractive considering the underlying growth/margin potential." 

Toward the end of the month, Stitch Fix surged again as a number of retailers, including WalmartTarget, and Nordstrom, posted impressive quarterly reports. Walmart and Target reported their best quarterly growth in over a decade, a sign that American consumers are feeling better than they have in a long time.

Now what

Stitch Fix has not yet reported earnings for the period covered by those three retailers' latest reports, as its fourth-quarter report for the three-month period ended July 28 is due out Oct. 1. But based on the strong growth in the sector, there's good reason to expect Stitch Fix's numbers to beat expectations.

The stock is less than a year old on the public markets, and investors haven't yet decided how to value the subscription-based online styling service, as it's unique. That may explain why the stock was able to jump more than 40% in a month on little news, because the gains are primarily due to momentum.

Those gains could just as easily prove fleeting, but I believe there are a number of reasons that Stitch Fix should be a long-term winner. We'll learn more when the company reports at the end of the month.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

StitchFix Stock Quote
StitchFix
SFIX
$23.17 (0.96%) $0.22
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$137.51 (1.51%) $2.04
Target Corporation Stock Quote
Target Corporation
TGT
$247.57 (0.84%) $2.07
SunTrust Banks, Inc. Stock Quote
SunTrust Banks, Inc.
STI
Nordstrom, Inc. Stock Quote
Nordstrom, Inc.
JWN
$20.19 (-1.80%) $0.37

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
624%
 
S&P 500 Returns
141%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/05/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.