G-III trades at $26.65 and has moved in lockstep with the market. Its shares have returned 6.4% over the last six months while the S&P 500 has gained 6.2%.

Is there a buying opportunity in G-III, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

We're sitting this one out for now. Here are three reasons why we avoid GIII and a stock we'd rather own.

Why Do We Think G-III Will Underperform?

Founded as a small leather goods business, G-III (NASDAQ:GIII) is a fashion and apparel conglomerate with a diverse portfolio of brands.

1. Long-Term Revenue Growth Flatter Than a Pancake

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, G-III struggled to consistently increase demand as its $3.11 billion of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and signals it’s a low quality business.

2. Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

G-III historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.8%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

Final Judgment

G-III doesn’t pass our quality test. That said, the stock currently trades at 6.7× forward price-to-earnings (or $26.65 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. Let us point you toward one of our top software and edge computing picks.

Stocks We Would Buy Instead of G-III

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