Investors haven't had a stable reading on the value of Stitch Fix (SFIX 4.02%) stock lately. The online apparel seller's shares have been lower by almost 60% -- and higher by nearly 20% -- at different points in 2020.

That range reflects uncertainty about this novel business, which is seeking to disrupt apparel retailing through a subscription selling approach that relies on technologies such as machine learning. There's a lot of potential growth in the industry, but Stitch Fix first has to demonstrate that it can thrive through some difficult selling conditions.

With that bigger picture in mind, let's look at why investors might consider buying this stock today.

A young woman lifts folded clothes out of a box

Image source: Getty Images.

Good engagement

Stitch Fix is clearly on to something with its subscription-based approach to selling apparel. The company gained more than half a million active clients in the six months ending on Feb. 1, equating to 17% growth year over year. These shoppers now number 3.5 million and are highly engaged in the service, and they were becoming more so with each passing month. 

Revenue per client rose 8% in fiscal Q2, and Stitch Fix notched some market share wins by pushing deeper into men's wear. Meanwhile, its service continues to change as the company adjusts its styling algorithms. New launches in just the last year include a popular direct-buy program that could meaningfully boost sales in the next few years.

But even before the COVID-19 pandemic the business was showing signs of stress. CEO Katrina Lake and her team noted back in early March that clients were passing on higher-priced apparel due to rising promotion levels in the industry. Stitch Fix is also vulnerable to changing digital advertising costs, which made it less efficient at gaining new customers in late 2019.

Big struggles

These challenges only mounted as the pandemic started impacting the company in fiscal Q3. Stitch Fix announced some brutal operating metrics for that period, saying in early June that revenue fell, gross margin slumped, and cash flow turned negative.

Investors can safely ignore these issues to the extent that they were driven by the unique operating environment that forced surprise shutdowns at some of the company's fulfillment centers. But Stitch Fix had some potential growth issues before COVID-19, and the pandemic has only clouded its growth picture heading into late 2020.

The good news is that the company is enjoying robust engagement levels, which adds weight to management's claim that the recent slowdown was sparked by supply challenges rather than demand issues. Lake said in June that Stitch Fix is ready to "play offense in the coming quarters," after switching to a defensive posture during the worst of the pandemic lockdowns.

The value question

The value of a Stitch Fix investment will depend on how that offensive footing plays out through the rest of 2020 and over the next few years. Investors who are comfortable with elevated risk will see some good reasons to own shares here.

Yes, several of Stitch Fix's growth initiatives have been disappointments in the past year. But the company is improving its service by adding buying options and attacking new demographics and product niches. Its growing base of loyal subscribers gives it a valuable platform it can use to market these changes.

It might not be clear for a few quarters that these moves are building a formidable online retailing business. That's why some of the biggest stock returns are available to investors willing to buy into the uncertainty and hold through the volatility that's likely for this business over the next several months.

Editor's note: A previous version of this article misstated the number of new active clients added in the first half of fiscal 2020. The Fool and the author regret the error.