Consumer discretionary businesses are levered to the highs and lows of economic cycles. This volatility leads to big swings in stock prices that have worked in their favor recently - over the past six months, the industry has returned 20.1% and beat the S&P 500 by 3.2 percentage points.

Regardless of these results, investors should tread carefully as many companies in this space are unpredictable because they lack recurring revenue business models. Keeping that in mind, here is one consumer stock boasting a durable advantage and two that may face trouble.

Two Consumer Discretionary Stocks to Sell:

Ralph Lauren (RL)

Market Cap: $15.46 billion

Originally founded as a necktie company, Ralph Lauren (NYSE:RL) is an iconic American fashion brand known for its classic and sophisticated style.

Why Are We Cautious About RL?

1. Constant currency growth was below our standards, suggesting it might need to invest in product improvements to get back on track
2. Anticipated sales growth of 4% for the next year implies demand will be shaky
3. The company’s capital intensity will likely increase as its free cash flow margin is anticipated to drop by 1.6 percentage points over the next year

At $247.90 per share, Ralph Lauren trades at 20.6x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than RL.

Planet Fitness (PLNT)

Market Cap: $9 billion

Founded by two brothers who purchased a struggling gym, Planet Fitness (NYSE:PLNT) is a gym franchise that caters to casual fitness users by providing a friendly and inclusive atmosphere.

Why Do We Think Twice About PLNT?

1. Poor same-store sales performance indicates it’s having trouble bringing new shoppers into its stores
2. Free cash flow margin is forecasted to shrink by 2 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
3. Shrinking returns on capital suggest its past profit sources are saturated

Planet Fitness is trading at $106.91 per share, or 39.1x forward price-to-earnings. Read our free research report to see why you should think twice about including PLNT in your portfolio, it’s free.

One Consumer Discretionary Stock to Watch:

Grand Canyon Education (LOPE)

Market Cap: $5.15 billion

Founded in 1949, Grand Canyon Education (NASDAQ:LOPE) is an educational services provider known for its operation at Grand Canyon University.

Why Does LOPE Stand Out?

1. Healthy operating margin of 26.3% shows it’s a well-run company with efficient processes
2. Industry-leading 29.2% return on capital demonstrates management’s skill in finding high-return investments, and its returns are growing as it capitalizes on even better market opportunities
3. Rising returns on capital show management is finding more attractive investment opportunities

Grand Canyon Education’s stock price of $179.16 implies a valuation ratio of 21.5x forward price-to-earnings. Is now the time to initiate a position? See for yourself in our comprehensive 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 United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.