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Why Stitch Fix Inc. Stock Soared 42% in August

By Jeremy Bowman – Updated Sep 5, 2018 at 3:03PM

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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 -0.42%) 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.

Jeremy Bowman owns shares of Stitch Fix. The Motley Fool owns shares of and recommends Stitch Fix. The Motley Fool recommends Nordstrom. The Motley Fool has a disclosure policy.

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