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 10.1% over the past six months. This performance was worse than the S&P 500’s 3.2% fall.

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. Keeping that in mind, here are three consumer stocks we’re swiping left on.

Bright Horizons (BFAM)

Market Cap: $4.30 billion

Founded in 1986, Bright Horizons (NYSE: BFAM) is a global provider of child care, early education, and workforce support solutions.

Why Do We Pass on BFAM?

1. 14.1% annual revenue growth over the last five years was slower than its consumer discretionary peers
2. Free cash flow margin is expected to remain in place over the coming year
3. Rising returns on capital show management is making relatively better investments

At $78.00 per share, Bright Horizons trades at 16.2x forward P/E. If you’re considering BFAM for your portfolio, see our FREE research report to learn more.

Lovesac (LOVE)

Market Cap: $197.8 million

Known for its oversized, premium beanbags, Lovesac (NASDAQ: LOVE) is a specialty furniture brand selling modular furniture.

Why Should You Sell LOVE?

1. Sales trends were unexciting over the last five years as its 16.8% annual growth was below the typical consumer discretionary company
2. Projected 2.5 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Lovesac’s stock price of $13.44 implies a valuation ratio of 7.9x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why LOVE doesn’t pass our bar.

Covista (CVSA)

Market Cap: $3.96 billion

Formerly known as DeVry Education Group, Covista (NYSE: CVSA) is a global provider of workforce solutions and educational services.

Why Is CVSA Risky?

1. Annual revenue growth of 13.9% over the last five years was below our standards for the consumer discretionary sector
2. Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 3.8 percentage points over the next year
3. Underwhelming 8.6% return on capital reflects management’s difficulties in finding profitable growth opportunities

Covista is trading at $114.59 per share, or 14.4x forward P/E. Dive into our free research report to see why there are better opportunities than CVSA.

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