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Stitch Fix Downgraded to Hold by Stifel on Valuation

Stitch Fix's 'recent multiple expansion, ahead of the recovery, results in a risk/reward balance' that justifies the neutral rating, Stifel said.
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Stitch Fix  (SFIX) - Get Stitch Fix, Inc. Class A Report shares dropped Monday after Stifel analyst Lamont Williams downgraded the online apparel retailer to hold from buy based on valuation concerns.

At the same time, he raised his price target to $83 from $64 to reflect the stock’s recent surge. On Tuesday afternoon, Stitch Fix traded at $86.72, down 9.14%. It’s still up 45% over the past month, having become one of the stocks championed by retail investors against short sellers, though it has plunged 20% over the last three trading sessions.

Stitch Fix is trading at 4.3 times Williams’ fiscal 2022 enterprise value to revenue estimates, he wrote in a commentary cited by Barron’s. That exceeds competitors’ ratios, as well as where Stitch Fix stood prior to the Covid pandemic.

While Stitch Fix may gain strength as the pandemic ends, "the recent multiple expansion to the current level, ahead of the recovery, results in a risk/reward balance" that justifies the neutral rating," Williams said.

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Williams is still bullish long-term, citing the company’s Direct Buy business which enables shoppers to buy online just like they do at traditional retailers. Stitch Fix's strong data operation is a factor too, he said. Still, at this point, the stock’s price reflects all that good news, he said.

In December, three top analysts raised their share price targets for Stitch Fix: Mark Mahaney of RBC Capital Markets to $64 from $50, Heath Terry of Goldman Sachs to $58 from $34 and Kunal Madhukar of Deutsche Bank to $54 from $34.

Mahaney anticipates that the overall consumer shift to online shopping during the coronavirus pandemic will continue, helping Stitch Fix, according to Bloomberg. The other two cited that factor as well.

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