The performance of consumer discretionary businesses is closely linked to economic cycles. Unfortunately, the industry’s recent performance suggests demand may be fading as discretionary stocks have pulled back by 8% over the past six months. This performance was worse than the S&P 500’s 4% loss.

While some companies have durable competitive advantages that enable them to grow consistently, the odds aren’t great for the ones we’re analyzing today. With that said, here are three consumer stocks we’re swiping left on.

iHeartMedia (IHRT)

Market Cap: $236.3 million

Occasionally featuring celebrity hosts like Ryan Seacrest on its shows, iHeartMedia (NASDAQ:IHRT) is a leading multimedia company renowned for its extensive network of radio stations, digital platforms, and live events across the globe.

Why Do We Think IHRT Will Underperform?

1. Products and services fail to spark excitement with consumers, as seen in its flat sales over the last two years
2. Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 15.9% annually
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

At $1.72 per share, iHeartMedia trades at 0.3x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why IHRT doesn’t pass our bar.

Latham (SWIM)

Market Cap: $744.4 million

Started as a family business, Latham (NASDAQ:SWIM) is a global designer and manufacturer of in-ground residential swimming pools and related products.

Why Are We Cautious About SWIM?

1. Products and services have few die-hard fans as sales have declined by 14.5% annually over the last two years
2. Earnings per share fell by 21.4% annually over the last four years while its revenue grew, showing its incremental sales were much less profitable
3. Negative returns on capital show that some of its growth strategies have backfired

Latham’s stock price of $6 implies a valuation ratio of 59.3x forward price-to-earnings. To fully understand why you should be careful with SWIM, check out our full research report (it’s free).

Warner Bros. Discovery (WBD)

Market Cap: $25.46 billion

Formed from the merger of WarnerMedia and Discovery, Warner Bros. Discovery (NASDAQ:WBD) is a multinational media and entertainment company, offering television networks, streaming services, and film and television production.

Why Do We Pass on WBD?

1. Annual revenue declines of 4.5% over the last two years indicate problems with its market positioning
2. Incremental sales over the last five years were much less profitable as its earnings per share fell by 17.9% annually while its revenue grew
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Warner Bros. Discovery is trading at $10.21 per share, or 2.7x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why WBD doesn’t pass our bar.

Stocks We Like More

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