Most consumer discretionary businesses succeed or fail based on the broader economy. Lately, it seems like demand trends have worked in their favor as the industry has returned 15.5% over the past six months, outpacing S&P 500 by 6.6 percentage points.

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 are three consumer stocks we’re passing on.

Polaris (PII)

Market Cap: $2.46 billion

Founded in 1954, Polaris (NYSE:PII) designs and manufactures high-performance off-road vehicles, snowmobiles, and motorcycles.

Why Do We Think PII Will Underperform?

1. Products and services aren’t resonating with the market as its revenue declined by 8.2% annually over the last two years
2. Earnings per share fell by 12.4% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
3. Eroding returns on capital suggest its historical profit centers are aging

At $45.08 per share, Polaris trades at 15x forward price-to-earnings. Check out our free in-depth research report to learn more about why PII doesn’t pass our bar.

Nexstar Media (NXST)

Market Cap: $4.65 billion

Founded in 1996, Nexstar (NASDAQ:NXST) is an American media company operating numerous local television stations and digital media outlets across the country.

Why Are We Hesitant About NXST?

1. Annual revenue growth of 2.5% over the last two years was below our standards for the consumer discretionary sector
2. Demand will likely fall over the next 12 months as Wall Street expects flat revenue
3. Low returns on capital reflect management’s struggle to allocate funds effectively, and its decreasing returns suggest its historical profit centers are aging

Nexstar Media’s stock price of $153.34 implies a valuation ratio of 7.8x forward price-to-earnings. If you’re considering NXST for your portfolio, see our FREE research report to learn more.

Gray Television (GTN)

Market Cap: $399.2 million

Specializing in local media coverage, Gray Television (NYSE:GTN) is a broadcast company supplying digital media to various markets in the United States.

Why Do We Think Twice About GTN?

1. Muted 2.1% annual revenue growth over the last two years shows its demand lagged behind its consumer discretionary peers
2. Estimated sales decline of 1.1% for the next 12 months implies a challenging demand environment
3. 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

Gray Television is trading at $4.03 per share, or 2.5x forward price-to-earnings. Read our free research report to see why you should think twice about including GTN in your portfolio, it’s free.

Stocks We Like More

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