May Standout: Stitch Fix

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 is back on the performance standout podium after having a dismal February, March, and April. After hitting a high of over $100 in January the stock pulled back to below $40 in May. So what's the deal?

In February I wrote that the better buy would be near $50 and the markets, sure enough, afforded you the opportunity to add to Stitch Fix. The stock returned over 20% in the month of May for no particular reason other than the selling was overdone. The price we were willing to buy at, many other investors felt the same way.

The company also reported earnings on June 7th. The growth was amazing topping 40% compared to the 20% range they forecasted. They also took a huge step towards being a profitable company with the results last quarter. The one red flag I'm keeping an eye on though is their cash burn. Their cash reserves continue to get lower and they have negative cash flow from their operations. I don't mind if the company isn't profitable yet but we're going to want to see them be cash flow positive from their operations to feel more comfortable with the position.