Stitch Fix (SFIX -2.82%) was an incredibly resilient apparel company during the pandemic last year, and shareholders were rewarded with a more-than-200% return over the course of the last trailing 12-month stretch -- that is, up until Stitch Fix reported on its fiscal 2021 second quarter (the three months ended Jan. 30, 2021). Lowered guidance for the fiscal year sent share prices retreating some 30% immediately following the report, building on the losses endured during a general sell-off in tech stocks in recent weeks. 

Despite the recent results, this company remains a growth story, and one that looks like a long-term value given the strength Stitch Fix is displaying despite difficult times. Here are three reasons why.

Someone pictured offscreen inputting credit card info into a laptop.

Image source: Getty Images.

1. Growth is a good problem to have

Though coming off a year marked by plummeting apparel industry sales, Stitch Fix has been anticipating a quick return to sales growth exceeding 20% as the economy gradually reopens. The U.S. Census Bureau reported revenue at the average clothing and accessories business fell 26% in 2020, but at some point, people are going to need some new threads before venturing back out into the world. 

And even with last year's headwinds, Stitch Fix reported just a brief blip last spring, with revenue falling 9% year over year before quickly returning to growth. That growth trend continued through the busy holiday shopping season -- in the company's fiscal 2021 Q2, revenue grew nearly 12% year over year from pre-pandemic levels to reach $504 million, driven by a nearly 12% increase in active clients to 3.9 million. Paired with results from Q1, Stitch Fix's online and AI-enhanced curated clothing operation is doing well considering the state of the economy.

Metric

Six Months Ended
Jan. 30, 2021

Six Months Ended
Feb. 1, 2020

Change

Revenue

$995 million

$897 million

11%

Net income (loss)

($11.5 million)

$11.3 million

N/A

Free cash flow

($8.23 million)

$26.8 million

N/A

Data source: Stitch Fix. 

2. Lowered expectations, but eating market share for lunch

Though the numbers are more than respectable given lockdowns and social distancing mandates, sales in Q2 were lower than the company had forecast. Stitch Fix blamed delays in shipping during the holiday shopping frenzy, a situation that has spilled over into Q3. As a result, management's expectations for accelerating growth this year aren't panning out. Full-year 2021 revenue growth is expected to be 18% to 20%, compared to 20% to 25% before

Put another way, Stitch Fix stock had gotten ahead of itself leading into the latest quarterly update, and the downgrade in the full-year outlook didn't help. But let's not take too much away from Stitch Fix. It's still growing while most apparel companies are shrinking. And while it will need to work out its issues with its shipping partner, the U.S. Postal Service, the 50% increase in new customers ordering their first "Fix" curated boxes of clothing -- the largest advance since 2016 -- might have had something to do with those issues.

These aren't unworkable problems. Plus, Stitch Fix is forecasting a 36%-to-39% revenue increase in Q3 as it laps the initial economic lockdowns last spring. Lapping pandemic effects will continue well into the company's fiscal 2022, so this rapid rally in sales could persist for a few more quarters. And as it does so, it's taking market share from clothier incumbents. 

3. Shares are a value again

Given the situation, I think the stock is a reasonable price, especially after the recent tumble. Shares trade for less than 2.5 times expected full-year 2021 sales, and though the company has dipped back into the red on the bottom line, that's because it's spending to acquire new customers as the economy rebounds and to scale up its direct buy service (in which customers can peruse ensembles online, versus the curated shipments Stitch Fix is best known for).

Either way, the small loss generated through the first half of the year doesn't worry me. There was $307 million in cash and equivalents on the balance sheet at the end of January, giving this company plenty of room to spend as it tries to maximize its new client acquisition efforts. 

Granted, I'll be watching Stitch Fix's progress as the economy slowly finds its footing, but as of right now I think this stock looks like a long-term bargain on a growing leader in the apparel industry.