Consumer staples are considered safe havens in turbulent markets due to their inelastic demand profiles. On the other hand, they usually underperform during bull runs, and this paradigm has rung true over the past six months as the sector’s -4.6% decline paled in comparison to the S&P 500’s 16.8% gain.
Given the low switching costs of basic goods like paper towels, many companies will continue generating poor results while only a handful will shine. With that said, here are three consumer stocks we’re steering clear of.
Edgewell Personal Care (EPC)
Market Cap: $1.23 billion
Boasting brands such as Banana Boat, Schick, and Skintimate, Edgewell Personal Care (NYSE:EPC) sells personal care products in the skin and sun care, shave, and feminine care categories.
Why Do We Avoid EPC?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Operating margin declined by 6.8 percentage points over the last year as its sales cratered
- Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 11.3% annually, worse than its revenue
Edgewell Personal Care is trading at $26.73 per share, or 11.5x forward P/E. To fully understand why you should be careful with EPC, check out our full research report (it’s free).
Inter Parfums (IPAR)
Market Cap: $3.64 billion
With licenses to produce colognes and perfumes under brands such as Kate Spade, Van Cleef & Arpels, and Abercrombie & Fitch, Inter Parfums (NASDAQ:IPAR) manufactures and distributes fragrances worldwide.
Why Are We Hesitant About IPAR?
- Revenue base of $1.50 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Estimated sales growth of 2% for the next 12 months implies demand will slow from its three-year trend
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 1.7 percentage points
Inter Parfums’s stock price of $113.15 implies a valuation ratio of 23.3x forward P/E. Dive into our free research report to see why there are better opportunities than IPAR.
Bunge Global (BG)
Market Cap: $20.62 billion
With origins dating back to 1818 and operations spanning both hemispheres to balance seasonal harvests, Bunge Global (NYSE:BG) is an agribusiness and food company that processes oilseeds, grains, and other agricultural commodities into vegetable oils, protein meals, flours, and specialty ingredients.
Why Are We Cautious About BG?
- Demand will likely fall over the next 12 months as Wall Street expects flat revenue
- Gross margin of 5.4% is below its competitors, leaving less money to invest in areas like marketing and production facilities
- Earnings per share fell by 16% annually over the last three years while its revenue grew, showing its incremental sales were much less profitable
At $107.30 per share, Bunge Global trades at 10.1x forward P/E. Check out our free in-depth research report to learn more about why BG doesn’t pass our bar.
Stocks We Like More
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