Stock of the Month: Stitch Fix, Inc. (SFIX)

Written by Donnie Nguyen

December 22, 2019

Stitch Fix Styled over 3.4 Million Customers Last Quarter

Ever wonder what it would be like to have a personal stylist? Someone who keeps up with the latest fashion trends and fixes you up with a wardrobe highly personalized to your style? Move over Hollywood A-listers, personal stylists aren’t just for you anymore.

This month’s stock pick is Stitch Fix, Inc. (NYSE: SFIX). They use a combination of data science and human judgment to deliver one-to-one personalization to their customers. Since its founding in 2011, Stitch Fix has helped millions of men, women, and kids discover and buy what they love through personalized shipments of apparel, shoes, and accessories, hand-selected by Stitch Fix stylists and delivered to clients’ homes.

In the U.S., clients pay a styling fee (currently $20) which gets applied to any items they keep in their Fix. Any unwanted items can be easily sent back at no extra charge. Clients can also use the Extras feature to select items such as socks, bras, underwear, and other intimates that are then added to the items their stylist selects for their Fix.


Currently, their business is 100% online, which gives it a competitive advantage against traditional brick-and-mortar businesses like The Gap (NYSE: GPS) or Nordstrom’s (NYSE: JWN), which owns Trunk Club. Unlike its primarily brick-and-mortar competitors, it doesn’t have to deal with declining foot traffic at malls.

Select U.S. clients may also purchase an annual Style Pass, which offers unlimited styling for the year for a $49 fee. 100% online business with an annual subscription fee for extra perks? Sounds a little like Amazon (NASDAQ: AMZN), doesn’t it? And what’s worked for Amazon has also been working for Stitch Fix.

In the latest quarter ended November 2, 2019, Stitch Fix reported $444.8 million in net revenue representing a year-over-year growth of 21.5% from the three months ended October 27, 2018. As of November 2, 2019, and October 27, 2018, they had 3,416,000 and 2,930,000 active clients, respectively, representing a year-over-year growth of 16.6%. (Source: 10-Q)

Top-Notch CEO with a Large Stake in the Company

Stitch Fix is run by Founder and CEO, Katrina Lake. She holds a B.A. in Economics from Stanford University and an M.B.A. from Harvard University. She’s also served as a director of GrubHub, Inc. (NYSE: GRUB), an online and mobile food delivery service, since December 2015. She has a 27% stake in Stitch Fix.

I like owning companies run by strong founders who have large stakes in the company they founded. Because of their large ownership stake, they have a very strong motivation for their company to succeed.


Growth Priced at a Discount

As a young company, it’s often difficult to use the Price-to-Earnings (P/E) ratio to value a company since many high growth companies in their initial stages have very high P/E or even negative P/E. So instead I often use the Price-to-Sales (P/S) ratio.

Stitch Fix’s P/S ratio is 1.6. Compare this with another stock that I own, Roku (NASDAQ: ROKU), whose P/S ratio is 16.3. Of course, both of these companies are in different industries and Roku’s most recent quarterly sales growth was nearly 4 times bigger at 79.2%  But it seems a little odd for Stitch Fix to have a P/S ratio 1/10th the size of another relatively young growth stock.

If Stitch Fix’s sales and customer base continue to grow at a strong rate over the next 5 years, I think that the P/S ratio could rise above 3, which could mean a doubling of the stock price.

Stats (As of 12/20/2019)

  • Market Cap: $2.7B
  • Closing Price: $26.48
  • Trailing P/E: 104.7
  • Forward P/E: 110.3
  • Profit Margin: 1.57%
  • Return on Equity (ttm): 7.0%
  • Revenue (ttm): $1.7B
  • Quarterly Revenue Growth (yoy): 21.5%
  • Diluted EPS (ttm): $0.25
  • Quarterly Earnings Growth (yoy): negative
  • Total Debt/Equity (mrq): 95.1%
  • Free Cash Flow (ttm): $12.8M


Stitch Fix has competition from Trunk Club, Rent the Runway, and Amazon’s Prime Wardrobe. And other competition appears to be popping up. It’s going to be important for Stitch Fix to differentiate themselves from their competitors and come out on top.

Should I Buy?

Stitch Fix, Inc. could be a good addition to a portfolio that needs exposure to:

  • The Consumer Discretionary Sector
  • Small-Cap Growth Stocks

Be sure to do your own research and determine for yourself if Stitch Fix, Inc. is a good stock for your portfolio.


Here are some portfolio guidelines we Wolves try to live by:

  • Thou shalt not hold more than 35% in any one particular sector
  • Thou shalt not invest more than 10% of principal into 1 individual stock
  • Thou shalt make small purchases. The general rule of thumb is to spend no more than 2% of your portfolio on a single purchase and build up your position over time.

The Bottom Line

Stitch Fix, Inc. is a fast-growing small-cap online clothing retailer run by a strong founder and CEO who still owns a large stake in the company. Compared with other young growth companies, it appears to be undervalued with a P/S ratio of 1.6. If it continues it’s strong growth, I think the stock can double in the next five years (assuming the U.S. stays remains in a bull market).

So what do you think about Stitch Fix, Inc.? Share this story on social media and leave a comment in the comment box.


I/we own shares of stock in AMZN, ROKU, SFIX.

Except for Wolves of Investing, I/we are not receiving any compensation from and do not have any business dealings with any companies discussed in this article.

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Donnie Nguyen

Donnie Nguyen

Donnie Nguyen is the founder and CEO of Wolves of Investing. He started investing in the stock market in the early 2000s. He follows the teachings of Peter Lynch, Warren Buffett, and other investing legends. When he's not investing or blogging, he loves spending time with his family traveling and experiencing the world.

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