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Here's Why Stitch Fix Is Soaring on Thursday

By Matthew Frankel, CFP® – Jan 6, 2022 at 12:04PM

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The innovative apparel company is having a big rebound today.

What happened

Online apparel-company Stitch Fix (SFIX 0.10%) has been under pressure in recent months but is getting a nice pop on Thursday. As of 11:30 a.m. ET, Stitch Fix was up by more than 11% for the day.

So what

Growth stocks, in general, were having a rather strong day on Thursday, with the tech-heavy Nasdaq the best performer of the three major indices, by far. So this likely is giving the stock a bit of a tailwind.

Two people shopping online.

Image source: Getty Images.

However, the real reason behind today's move is the announcement of a $150 million buyback authorization by the company's board of directors. Stitch Fix has over $400 million in cash and equivalents, so the buyback is more than covered by the company's current available capital.

Stitch Fix has a market capitalization of just over $2 billion after recent declines. This buyback, therefore, is fairly aggressive, as it represents more than 7% of the outstanding shares, based on the current price. And to be clear, this won't happen all at once. Like with most buybacks, the company will conduct share repurchases at management's discretion on the open market or through private transactions.

Now what

In addition, commentary by CEO Elizabeth Spaulding in the press release that was issued today was just as important to today's move as the buyback announcement. Spaulding specifically said that management doesn't believe the apparel-company's growth potential is accurately reflected in the current valuation.

In other words, management thinks Stitch Fix stock is cheap and that using a large chunk of the company's available cash to conduct buybacks is the best use of its capital. That's why we're seeing such a big move today.

Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool owns and recommends Stitch Fix. The Motley Fool has a disclosure policy.

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