Retailers are overhauling their operations as technology redefines the shopping experience. But many seem to be moving too slowly as their demand is lagging, causing the industry to underperform the market - over the past six months, retail stocks have shed 3.4%. This drop was disheartening since the S&P 500 gained 4.9%.

Investors should tread carefully as many companies in this space can be value traps. Taking that into account, here are three consumer stocks that may face trouble.

Designer Brands (DBI)

Market Cap: $196.5 million

Founded in 1969 as a shoe importer and distributor, Designer Brands (NYSE:DBI) is an American discount retailer focused on footwear and accessories.

Why Do We Pass on DBI?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
2. 12.7 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

Designer Brands’s stock price of $4.10 implies a valuation ratio of 5.5x forward price-to-earnings. Check out our free in-depth research report to learn more about why DBI doesn’t pass our bar.

Monro (MNRO)

Market Cap: $503.4 million

Started as a single location in Rochester, New York, Monro (NASDAQ:MNRO) provides common auto services such as brake repairs, tire replacements, and oil changes.

Why Do We Think MNRO Will Underperform?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Revenue base of $1.21 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
3. Low returns on capital reflect management’s struggle to allocate funds effectively, and its shrinking returns suggest its past profit sources are losing steam

At $16.73 per share, Monro trades at 17.6x forward price-to-earnings. If you’re considering MNRO for your portfolio, see our FREE research report to learn more.

MarineMax (HZO)

Market Cap: $533.6 million

Appropriately headquartered in Clearwater, Florida, MarineMax (NYSE:HZO) sells boats, yachts, and other marine products.

Why Is HZO Not Exciting?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Negative free cash flow raises questions about the return timeline for its investments
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

MarineMax is trading at $24.37 per share, or 8.7x forward price-to-earnings. To fully understand why you should be careful with HZO, check out our full research report (it’s free).

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