The performance of consumer discretionary businesses is closely linked to economic cycles. Lately, it seems like demand trends have worked in their favor as the industry has returned 11.8% over the past six months, similar to the S&P 500.
Regardless of these results, investors should tread carefully as many companies in this space are unpredictable because they lack recurring revenue business models. Keeping that in mind, here are three consumer stocks we’re swiping left on.
Monarch (MCRI)
Market Cap: $1.70 billion
Established in 1993, Monarch (NASDAQ:MCRI) operates luxury casinos and resorts, offering high-end gaming, dining, and hospitality experiences.
Why Is MCRI Risky?
- 4.5% annual revenue growth over the last two years was slower than its consumer discretionary peers
- Free cash flow margin is expected to increase by 1.2 percentage points next year, suggesting the company will have more capital to invest or return to shareholders
- Rising returns on capital show management is making relatively better investments
Monarch’s stock price of $93.03 implies a valuation ratio of 16.2x forward P/E. To fully understand why you should be careful with MCRI, check out our full research report (it’s free).
Choice Hotels (CHH)
Market Cap: $4.91 billion
With almost 100% of its properties under franchise agreements, Choice Hotels (NYSE:CHH) is a hotel franchisor known for its diverse brand portfolio including Comfort Inn, Quality Inn, and Clarion.
Why Do We Pass on CHH?
- Weak revenue per room over the past two years indicates challenges in maintaining pricing power and occupancy rates
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 8.3% for the last two years
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Choice Hotels is trading at $106.97 per share, or 15.3x forward P/E. Dive into our free research report to see why there are better opportunities than CHH.
Matthews (MATW)
Market Cap: $870 million
Originally a death care company, Matthews International (NASDAQ:MATW) is a diversified company offering ceremonial services, brand solutions and industrial technologies.
Why Are We Out on MATW?
- Products and services fail to spark excitement with consumers, as seen in its flat sales over the last five years
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Stagnant returns on capital show management has failed to improve the company’s business quality
At $28.29 per share, Matthews trades at 25.2x forward P/E. Read our free research report to see why you should think twice about including MATW in your portfolio.
High-Quality Stocks for All Market Conditions
Check out the high-quality names we’ve flagged in our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.