Buy Stitch Fix Amid Record Short Interest, SunTrust Says Ahead Of Q4 Report

Online styling service Stitch Fix Inc SFIX is set to report fourth-quarter earnings Tuesday.

The Analyst

SunTrust analyst Youssef Squali maintains a Buy rating with a $44 price target.

The Thesis

SunTrust expects fourth-quarter results to come in relatively in-line with expectations, Squali said in a Monday note. (See his track record here.) 

“If the company comes within shouting distance of Street expectations and management guides to relatively in-line FY20 results, we believe the stock will show much volatility near-term give its record short position (40% of float), and its material underperformance year-to-date,” the analyst said. 

Much has been made of the year-over-year weakness in credit card data and traffic trends in the fourth quarter, despite a low historical correlation, he said. 

Marketing efficiency and traction in the U.K. and newer products should drive the stock, Squali said. 

Amazon.com, Inc. AMZN’s new prime offering, Personal Shopper, resembles Stitch Fix’s offering, but will not have much impact on the company in its current form, the analyst said. 

“We believe there is still too much friction in the Personal Shopper experience (Prime members only, only within mobile app, monthly fee) to have much impact on Stitch Fix, and importantly we have yet to see Amazon market the offering more aggressively. Commentary on this offering and its impact to-date will be of focus on the call, in our view.”

Price Action

Stitch Fix shares were up 4.96% at $19.25 at the close Monday. 

Related Links:

Why Stitch Fix Uses Artificial Intelligence To Understand Consumer Habits

The Future Of Retail? Innovative Alternatives To Traditional Shopping

Photo courtesy of Stitch Fix.