Shares of online clothier Stitch Fix (NASDAQ:SFIX) jumped 9.1% in 11 a.m. EDT trading Tuesday — and you can probably thank the friendly analysts at Evercore ISI for that.
Yesterday after close of trading, you see, Evercore announced that it is initiating coverage of Stitch Fix with an “outperform” rating and a $78 price target — quite a lot more than the $52 and change that Stitch Fix stock currently costs.
During the pandemic, a lot of investors probably considered Stitch Fix as a kind of “pandemic play,” inasmuch as it facilitated shopping for clothes remotely, rather than in physical stores. And yet, as StreetInsider.com reports, Evercore thinks consumers’ “closets need to be restocked” after a year of living in lockdown, and argues that now Stitch Fix is actually “a COVID recovery play” (emphasis added).
Personally, I don’t understand the logic of that statement — the “pandemic play” argument made more sense to me, even if it didn’t end up working out in practice. Now it almost seems as if Evercore is casting about in search of an argument that “works” to defend buying unprofitable Stitch Fix.
Still, the analyst argues that if it’s right, “FY21 and FY22 should both experience rev growth acceleration.” Evercore therefore advises that investors take “advantage of recent 40% pullback” to buy Stitch Fix stock before this growth materializes.
As for me, I’d prefer to see Stitch Fix prove that it can earn a profit post-pandemic (after losing money in three of the past four pandemic quarters) before buying into this thesis.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.