What Happened?

Shares of personalized clothing company Stitch Fi (SFIX)x fell 11.2% in the morning session after the major indices tumbled (Nasdaq down 1.1%, S&P 500 down 1.0%) while yields soared, as the Bureau of Labor Statistics reported non-farm payrolls for the month of December 2024, which was stronger than expected, raising concerns the Fed might hold rates at the current levels for longer. Payrolls jumped by 256,000, far surpassing analysts' forecasts of a 155,000 gain. Meanwhile, the unemployment rate dipped slightly to 4.1%, signaling resilience in the U.S. job market. While the data can be interpreted as good news for the U.S. economy, it casts uncertainty over assets like stocks. Investors now view the robust jobs data as further justification for the Fed to maintain its current rate stance in upcoming policy meetings. 

As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. The result of lower interest rates, all else equal, is higher stock valuations. This is especially true for higher-growth stocks, such as those in the technology sector, where the current value depends more on cash flows many years out in the future. 

What The Market Is Telling Us

Stitch Fix’s shares are extremely volatile and have had 59 moves greater than 5% over the last year. But moves this big are rare even for Stitch Fix and indicate this news significantly impacted the market’s perception of the business. 

The previous big move we wrote about was about a month ago when the stock gained 46.6% on the news that the company reported a "beat and raise" quarter (FQ1 2025). Stitch Fix blew past analysts' revenue, EPS, and EBITDA expectations. Looking ahead, it raised its full-year revenue and EBITDA guidance, which is encouraging. Management pointed to a strong start to the fiscal year, driven by their ongoing efforts to transform the business. This includes completing the exit from the UK market and implementing strategies aimed at returning to positive sales growth by the end of fiscal 2026. Zooming out, we think this was a solid "beat-and-raise" quarter.

Stitch Fix is up 7% since the beginning of the year, but at $4.68 per share, it is still trading 29.6% below its 52-week high of $6.64 from December 2024. Investors who bought $1,000 worth of Stitch Fix’s shares 5 years ago would now be looking at an investment worth $201.70. 

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