Stifel Upgrades Stitch Fix, Says 'The Fix Is In'

Shares of personalized fashion company Stitch Fix Inc SFIX have lost more than 15% since the start of July which Stifel says creates a buying scenario.

The Analyst

Stifel's Scott Devitt upgraded Stitch Fix from Hold to Buy with an unchanged $35 price target.

The Thesis

The case for turning bullish on Stitch Fix is based on a combination of a favorable outlook for the company and an attractive valuation, Devitt wrote in the note. From a business perspective, continued improvements in personalization capabilities and a focus on higher quality customers should help support average revenue per user (ARPU) growth in the coming quarters.

Devitt said the company is in the early stages of leveraging data it receives from Style Shuffle to improve personalization. This is evident in improving year-over-year keep rates, which ticked higher each quarter since it was launched in early 2017. Keep rates in the women's business hit a record higher in the first quarter of 2019.

Recent momentum should sustain over the coming years and total estimated active users should grow from 2.742 million in fiscal 2018 to an estimated 6.154 million by fiscal 2024. This figure assumes Stitch Fix will enter the U.K. market in fiscal 2020 and Germany in 2022. Devitt said it's also likely the company could see incremental upside as it is expected to launch into a fourth market in the coming years.

In terms of valuation Stitch Fix's stock is trading at just 1.3 times 2020 sales, which is below the historical average and offers an "attractive entry point."

Price Action

Shares of Stitch Fix were trading higher by 1.4% at $27.27 Monday morning.

Related Links:

IBUY Online Retail ETF Lands Morningstar's 5-Star Rating

Wall Street Positive On Stitch Fix Amid Tough Apparel Retail Backdrop

Photo courtesy of Stitch Fix.