Stitch Fix Stock Up 12% Today – Time to Buy SFIX Stock?

The price of Stitch Fix stock is up 12% this morning in pre-market stock trading action following the release of an upbeat earnings report covering the fourth quarter of the company’s 2021 fiscal year.

During the three months ended on 31 July, sales of the San Francisco-based online apparel retailer landed at $571.16 million or 29% higher than the number reported during the same period a year ago while the firm also exceeded the consensus estimate for the quarter by more than 4%.

Moreover, gross profits margins experienced a 160 basis point improvement on a year-on-year basis as they landed at 46.5% while the company swung to profitability upon reporting $21.5 million in net earnings compared to a $44.5 million loss reported during Q4 2020.

Finally, adjusted earnings per share came in at $0.19 compared to a $0.44 negative EPS reported in the same quarter a year ago. Analysts were expecting a $0.12 loss for the quarter, which means that Wall Street was surprised by this reversal.

The fact that the company has managed to swing to profits appears to be encouraging today’s pre-market buying spree as Stitch Fix reported net losses a year ago due to its operating expenses eating up a larger portion of its top-line. This was caused by the hiring of more personnel for data science and engineering positions.

Moving forward, can today’s sharp uptick result in a full-blow reversal of the latest downtrend the stock price has experienced? In the following article, I’ll take a look at the price action and fundamentals of Stitch Fix to possibly answer that question.

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Stitch Fix Stock – Technical Analysis

Stitch Fix was one of the targets of the Wall Street Bets retail crowd back in the first quarter of 2021 as reflected by the sharp rise the stock experienced during that period. However, since the short-squeezing frenzy started to lose traction, the price of SFIX stock has been steadily declining until it bottomed at around $33 per share.

A rebound off this level was accompanied by above-average trading volumes and that reinforces the relevance of this support area that can be traced back to October last year.

Now, today’s uptick is possibly making things more interesting for SFIX stock but it may not change its mid-term outlook as the price remains confined within the pronounced downtrend that emerged after the Q1 meme craze.

However, it is important to note that the Relative Strength Index (RSI) has just posted a slight bullish divergence as the oscillator made a higher low despite the price moving lower. Moreover, the stock’s short-float currently stands at 17.5% according to data from Finviz.

If this latest upbeat quarterly report is embraced with significant optimism by Wall Street, today’s sizable gain might mark the beginning of a comeback for Stitch Fix stock on the back of another short squeeze. However, it seems too early to tell if that will be the case unless the price manages to break above its short-term simple moving averages to fully reverse its downtrend.

Stitch Fix Stock – Fundamental Analysis

Stitch Fix sales have been growing steadily in the past five years, moving from $977 million back in 2017 to $2.1 billion by the end of this last fiscal year at a compounded annual growth rate of 21%.

The company’s gross margins have been progressively improving from around 44% to 46% this past quarter although the company has swung to net losses in the past two fiscal years amid an increase in its operating expenditures as a percentage of revenue.

For the full 2022 fiscal year, the management is expecting to see sales rising 15% to $2.42 billion while its adjusted EBITDA margin is expected to land at 2% ($48 million).

The company has no long-term debt and had $231 million in cash and equivalents by the end of this last quarter.

Currently, Stitch Fix is being valued at $3.8 billion resulting in a forward price-to-sales multiple of 1.6. This multiple is fairly low and it seems to be caused by the company’s struggles to increase its bottom-line profit margins even as the business has grown to a point that it should be able to enjoy some economies of scale.

Notably, at this valuation, the company’s active client base is being valued at $912. Even more interesting, net revenues per active client per year rose to $505 during the 2021 fiscal year or 4% higher than the previous year.

All things considered, Stitch Fix qualifies as an attractive growth pick based on the firm’s rapidly growing active client base. Moving forward, it would be plausible to expect that the market may assign the company a higher valuation multiple if it manages to keep increasing its net revenues per client.

Moreover, positive developments on the profitability front may further contribute to pushing the valuation of the firm higher.

Since the company seems to be already embarked on that path, the outlook for Stitch Fix from a fundamental perspective is bullish amid its seemingly conservative current valuation.

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