What happened
Shares of Stitch Fix (SFIX -4.44%) outperformed a rising market this week, as the stock jumped 13% through Thursday trading compared to a 1.5% increase in the wider market, according to data provided by S&P Global Market Intelligence.
The rally wasn't driven by any specific news from the company, and Stitch Fix stock remains down by over 60% so far in 2022. However, the move higher underscores how quickly shares might rebound if sentiment shifts on this beaten-down stock.
So what
There were a few encouraging developments this week that, while not specific to Stitch Fix's business, might mean that investors were too hasty in abandoning this apparel stock through most of 2022. Inflation trends are slowing and the job market remains healthy, reducing the risk of a recession. And the job market continues to show historically low levels of unemployment.
These trends helped spark a rally in the stock market over the last few weeks, and many of the hardest-hit stocks, like Stitch Fix, benefited disproportionately from the rebound.
Now what
Stitch Fix still faces major hurdles in fixing its business. Management is laying off employees and slashing costs after net losses expanded in recent months. Stich Fix isn't growing its user base at a quick enough level, and it hasn't found an efficient way to market to potential customers in today's digital media environment.
Sales are expected to fall by as much as 15% this quarter, executives said in early June, meaning the company is far from reestablishing itself as a reliable growth stock. Yet there's a case to be made that the stock's sell-off went too far in reducing Stitch Fix's market capitalization to below $800 million from its peak of over $9 billion in earlier phases of the pandemic.
Stitch Fix's finances and growth prospects are worse today than they appeared back then. However, the company still enjoys a strong connection with many apparel fans. If the e-commerce specialist can add more value in those relationships, while finding a better way to capture new clients, then the stock might extend its recovery deeper into 2022.
