Shares of Stitch Fix (NASDAQ:SFIX) exploded 10% higher in early Wednesday trading after Deutsche Bank initiated coverage of the online clothing subscription service with a buy rating and a $34 price target.
As of 11:15 a.m. EDT, Stitch Fix shares remain up 6.8%.
So what did Deutsche say to get investors so excited? As TheFly.com reports today, Deutsche thinks Stitch Fix will be "one of the biggest beneficiaries of the ongoing lockdowns and accelerated store closures," as shoppers migrate out of physical retail stores and onto the e-commerce platform instead.
Deutsche is particularly enthused about Stitch Fix's decision to extend its services to non-subscribers, by permitting them to buy clothing items directly, an initiative Stitch Fix will be rolling out over the next couple of quarters. The investment banker predicts this will "materially expand" Stitch Fix's total addressable market, but believes most investors have not yet realized this.
Stitch Fix stock costs more than 82 times trailing earnings. And despite Deutsche's optimism, so far the pandemic hasn't done much good for Stitch Fix, where sales were down 9%, not up, last quarter, and where both profits and free cash flow have turned negative.
Unless the company can do better than this, I'm not convinced Stitch Fix is worth even the $28 and change its stock is selling for already -- much less the 20% higher price Deutsche projects.