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Why Stitch Fix Stock Jumped Again Today

By Jeremy Bowman - Updated Jan 19, 2021 at 4:20PM

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The personalized styling service gained again on little news.

What happened

Shares of Stitch Fix (SFIX -6.68%) were gaining again today even as there was no news on the online personalized styling service. Instead, the stock seemed to benefit from a number of trends, including a short squeeze, signs the apparel industry is bouncing back, and hopes that the $1.9 trillion stimulus plan proposed by President-elect Joe Biden will further grease the economic recovery.

At the close of trading Tuesday, the stock was up 13.7%.

A woman carrying a Stitch Fix

Image source: Stitch Fix.

So what

Stitch Fix was among a number of growth stocks bouncing higher today after Janet Yellen, who's set to become Biden's Treasury secretary, urged Congress in her confirmation hearing to "act big" to support the economy. That added fuel to growth stocks, with the Nasdaq a big winner on the day.

Elsewhere, investors also continued to digest favorable news for apparel sellers like Stitch Fix. A note from Bank of America last Friday said that the $600 stimulus checks sent out at the end of December had juiced apparel spending and that the sector was the best-performing retail category, with sales up 20%. That was a notable difference from the first round of stimulus in the spring, which drove sales of essentials like electronics and home goods that consumers needed to adjust to home confinement during the pandemic.

Finally, Stitch Fix has been volatile in part because the stock is heavily shorted, meaning that a large number of investors are betting that it will fall. As of the end of December, 37% of the stock was sold short, which seems to have led to a short squeeze, pushing up the stock's value as short-sellers close out their bets.

Now what

This is Stitch Fix's third double-digit daily gain in just a week, and another sign that the stock is being propelled by a short squeeze. Last week, the news pushing the stock up was relatively thin, though it did seem to benefit from a strong debut by fellow e-commerce apparel stock Poshmark, and after it announced the winners of its new minority-focused grant program, Elevate.

The stock posted another all-time high today, meaning expectations are rising that the company will deliver strong 2021 results. Given the economic recovery, Stitch Fix looks poised to deliver, but the recent gains could easily be given back as the stock increasingly looks priced for perfection.

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Stocks Mentioned

StitchFix Stock Quote
StitchFix
SFIX
$7.68 (-6.68%) $0.55
Bank of America Corporation Stock Quote
Bank of America Corporation
BAC
$34.81 (-1.02%) $0.36
Poshmark, Inc. Stock Quote
Poshmark, Inc.
POSH
$11.57 (-3.90%) $0.47

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

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