Most consumer discretionary businesses succeed or fail based on the broader economy. Thankfully for the industry, demand trends seem to be healthy as discretionary stocks have gained 6.1% over the past six months. This performance has nearly mirrored the S&P 500.

Nevertheless, this stability can be deceiving as many companies in this space lack recurring revenue characteristics and ride short-term fads. Keeping that in mind, here is one consumer stock poised to generate sustainable market-beating returns and two we’re swiping left on.

Two Consumer Discretionary Stocks to Sell:

Inspired (INSE)

Market Cap: $286.2 million

Specializing in digital casino gaming, Inspired (NASDAQ:INSE) is a provider of gaming hardware, virtual sports platforms, and server-based gaming systems.

Why Does INSE Give Us Pause?

1. Lackluster 4.6% annual revenue growth over the last two years indicates the company is losing ground to competitors
2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 4.3%
3. Cash-burning history makes us doubt the long-term viability of its business model

At $10.77 per share, Inspired trades at 2.8x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including INSE in your portfolio, it’s free.

Warner Music Group (WMG)

Market Cap: $17.58 billion

Launching the careers of legendary artists like Frank Sinatra, Warner Music Group (NASDAQ:WMG) is a music company managing a diverse portfolio of artists, recordings, and music publishing services worldwide.

Why Does WMG Worry Us?

1. 4.6% annual revenue growth over the last two years was slower than its consumer discretionary peers
2. Projected sales growth of 4.4% for the next 12 months suggests sluggish demand
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities

Warner Music Group’s stock price of $33.55 implies a valuation ratio of 24.7x forward price-to-earnings. To fully understand why you should be careful with WMG, check out our full research report (it’s free).

One Consumer Discretionary Stock to Watch:

H&R Block (HRB)

Market Cap: $7.14 billion

Founded in 1955 by brothers Henry W. Bloch and Richard A. Bloch, H&R Block (NYSE:HRB) is a tax preparation company offering professional tax assistance and financial solutions to individuals and small businesses.

Why Are We Fans of HRB?

1. Excellent operating margin of 21.4% highlights the efficiency of its business model
2. Industry-leading 49% return on capital demonstrates management’s skill in finding high-return investments, and its returns are climbing as it finds even more attractive growth opportunities
3. Rising returns on capital show management is finding more attractive investment opportunities

H&R Block is trading at $54.29 per share, or 5.1x forward EV-to-EBITDA. Is now a good time to buy? Find out in our full research report, it’s free.

Stocks We Like Even More

The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.

Take advantage of the rebound by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.