On Wednesday, Bernstein, a financial services group, adjusted its outlook on Stitch Fix (NASDAQ:SFIX), Inc. shares (NASDAQ:SFIX), increasing the price target to $4.00 from the previous $3.50.
The firm maintained its Market Perform rating for the online personal styling service. The stock, currently trading at $4.60, has shown strong momentum with a 29% return year-to-date. According to InvestingPro analysis, the stock's RSI suggests it's in overbought territory, while the company's overall financial health score is rated as "FAIR."
Stitch Fix has experienced a prolonged period of revenue challenges, marking its 10th consecutive quarter of double-digit declines. Despite this trend, the company's first-quarter revenue surpassed analyst expectations by 4%.
Moreover, Stitch Fix demonstrated significant cost discipline, which was evident in the adjusted EBITDA of $13.5 million, nearly twice the amount anticipated by analysts. InvestingPro data reveals the company maintains a healthy current ratio of 1.8 and holds more cash than debt on its balance sheet, suggesting strong liquidity management. Discover 8 more exclusive ProTips and comprehensive financial analysis with an InvestingPro subscription.
The company has updated its fiscal year 2025 (FY25) guidance, reflecting not only the first-quarter performance but also heightened expectations for the remaining year. While the business appears to have stabilized, it is anticipated to be a year away from targeting growth once again. This forecast places a limitation on potential margin expansion and, consequently, the valuation of the company's stock.
Bernstein's previous analysis suggested that Stitch Fix could maintain profitability and stability; however, the total addressable market (TAM) opportunity for the company's business model was uncertain. Now, it is projected that positive growth will not materialize until the end of fiscal year 2026 (FY26).
The firm noted improvements in operating metrics such as average order value (AOV), client retention, and engagement. Nevertheless, the stock's valuation is expected to remain constrained within a certain range for the time being. This is due to lingering questions about long-term growth amidst a competitive and fragmented e-commerce retail landscape, especially considering the FY25 guidance indicates a top-line decline of 10% to 13%.
Bernstein concluded that while there may be potential for valuation upside as FY26 approaches and growth prospects become more imminent, the firm will remain neutral on the stock until clearer signs of long-term growth emerge.
With a market capitalization of $573 million and revenue of $1.34 billion in the last twelve months, InvestingPro's detailed analysis indicates the stock is currently trading near its Fair Value. Access the comprehensive Pro Research Report, available for Stitch Fix and 1,400+ other US stocks, to gain deeper insights into the company's valuation and growth prospects.
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