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 13.3% and beat the S&P 500 by 2.8 percentage points.

Nevertheless, this stability can be deceiving as many companies in this space lack recurring revenue characteristics and ride short-term fads. On that note, here are three consumer stocks we’re swiping left on.

Red Rock Resorts (RRR)

Market Cap: $3.77 billion

Founded in 1976, Red Rock Resorts (NASDAQ: RRR) operates a range of casino resorts and entertainment properties, primarily in the Las Vegas metropolitan area.

Why Do We Steer Clear of RRR?

1. 9% annual revenue growth over the last five years was slower than its consumer discretionary peers
2. Poor free cash flow margin of 11.5% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
3. Unchanged returns on capital make it difficult for the company’s valuation multiple to re-rate

Red Rock Resorts is trading at $63.68 per share, or 25.7x forward P/E. Read our free research report to see why you should think twice about including RRR in your portfolio.

Lindblad Expeditions (LIND)

Market Cap: $814.5 million

Founded by explorer Sven-Olof Lindblad in 1979, Lindblad Expeditions (NASDAQ: LIND) offers cruising experiences to remote destinations in partnership with National Geographic.

Why Do We Pass on LIND?

1. Annual revenue growth of 14.5% over the last two years was below our standards for the consumer discretionary sector
2. Poor expense management has led to an operating margin of 4.8% that is below the industry average
3. Free cash flow margin is not anticipated to grow over the next year

Lindblad Expeditions’s stock price of $14.73 implies a valuation ratio of 208.8x forward P/E. If you’re considering LIND for your portfolio, see our FREE research report to learn more.

YETI (YETI)

Market Cap: $3.83 billion

Founded by two brothers from Texas, YETI (NYSE: YETI) specializes in durable outdoor goods including coolers, drinkware, and other gear tailored to adventure enthusiasts.

Why Is YETI Risky?

1. Sales trends were unexciting over the last five years as its 12.7% annual growth was below the typical consumer discretionary company
2. Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 13.5 percentage points over the next year
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

At $49.20 per share, YETI trades at 17.7x forward P/E. To fully understand why you should be careful with YETI, check out our full research report (it’s free).

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