Why Stitch Fix Popped 31.4% in January

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What happened

Shares of Stitch Fix (NASDAQ: SFIX) climbed 31.4% in January, according to data from S&P Global Market Intelligence, rebounding from a 37.5% plunge in December despite a lack of company-specific news.

Of course, it helped that the S&P 500 climbed 8% last month, itself bouncing back from a 9% drop in December on concerns of slowing global economic growth. But as I suggested early last month, Stitch Fix’s steep drop was arguably unjustified in the first place.

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So what

More specifically, Stitch Fix fell in December after the company posted exceptional quarterly results — revenue rose 24% to $366 million, and adjusted earnings per share more than tripled to $0.10, with both figures easily outpacing Wall Street’s expectations. But it left some concerned that its number of active clients rose 22% year over year to only 2.93 million, falling slightly short of consensus estimates for 2.95 million. At the same time, Stitch Fix suggested user growth would be roughly flat in the holiday quarter, noting the trend was essentially in line with expectations given the platform’s relative lack of seasonality compared with traditional apparel retailers.

Make no mistake, with Stitch Fix stock still up more than 80% at the time from its late 2017 IPO, even the slightest whiff of decelerating growth in these early stages was enough to send fickle traders running for cover. Still, the uncertain nature of that slowdown likely left the bears on shaky ground, and many opportunistic investors were more than happy to take advantage of the pullback as a buying opportunity last month.

Now what

As it stands, Stitch Fix shareholders should receive their next quarterly update around the middle of March. Expect Wall Street to closely watch not only the company’s active client growth, but also its future expectations as it works to disrupt the traditional apparel industry as we know it. If we see evidence of an acceleration going forward, I suspect last month’s rise will prove to be just the start of a longer-term trend.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Stitch Fix. The Motley Fool has a disclosure policy.