January Standout: Stitch Fix (SFIX)

Updated: Dec 3, 2021

Each month we'll be highlighting our top performing holding for our clients. A month of performance is obviously a very short time period but we'll dive into the stock and what they're doing and maybe why they're performing so well.

Stitch Fix, Inc. delivers one-to-one personalization to its clients through a combination of data science and human judgment. Stylists hand select items from a broad range of merchandise. They pair their own judgment with analysis of client and merchandise data to provide a personalized shipment of apparel, shoes, and accessories suited to each client’s needs. Stitch Fix calls each of these unique shipments a Fix. After receiving the Fix, clients can purchase the items they want and return everything else. The company offers shirts, jackets, sweaters, blazers, leggings, jeans, loafers, boots, and accessories for men, women, and children.

Stitch Fix seemed to be a benefactor of the GameStop mania recently. Stitch Fix, like Gamestop, had some investors (over 20%) betting against the stock by selling it short. This created a squeeze for much of January probably leading to the great performance.

It still remains a more exciting name to own than a traditional clothing retailer that might be struggling in the current environment, even after the recent run. To buy it at the current price you'll need to be a big believer that they'll continue to execute and grow. Beyond their current "Fix" offering, customers can now purchase items in the Stitch Fix online shop at their own pace. The data science at Stitch Fix gives users outfits that match their preferences and pair well with items they have previously purchased. And now they're targeting men and children in addition to women. I'm a customer and have been happy with the service so far overall.

We initially purchased this stock in the $20 range last year but can you still buy it now? After all - price is important. Stitch Fix has a blend of retail and subscription. Some of their users receive regular shipments of clothes while others can now purchase on demand which creates a hybrid revenue model for the retailer. Their one major constraint are the stylists they hire to pair clothes with their subscribers. Constraint might be a strong word because it is also what makes the Stitch Fix service so great.

I still believe they can grow though. They are doing sales just under $2 billion right now, which is only about 2% of total U.S. online spending for clothes and accessories (and they're expanding overseas, albeit slower). At 5x sales the stock is probably trading at the highest amount I'd be willing to pay for it. Sure, you could buy a little here near $80 but you'll need to be patient and accept the possibility the stock could drop into the $40's. The better buy is near $50. You could gradually purchase as it (if it) moves lower. Remember, you don't need to dive head first into the pool every time. It's perfectly fine to dip a toe, then a foot, then a leg.