What a brutal six months it’s been for Oxford Industries. The stock has dropped 24.1% and now trades at $58.47, rattling many shareholders. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Oxford Industries, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Oxford Industries Will Underperform?
Even with the cheaper entry price, we're cautious about Oxford Industries. Here are three reasons why you should be careful with OXM and a stock we'd rather own.
1. Same-Store Sales Falling Behind Peers
Investors interested in Apparel and Accessories companies should track same-store sales in addition to reported revenue. This metric measures the change in sales at brick-and-mortar locations that have existed for at least a year, giving visibility into Oxford Industries’s underlying demand characteristics.
Over the last two years, Oxford Industries’s same-store sales averaged 2% year-on-year growth. This performance was underwhelming and suggests it might have to change its strategy or pricing, which can disrupt operations. 
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Oxford Industries’s revenue to drop by 1.8%, a decrease from its 3.7% annualized growth for the past two years. This projection doesn't excite us and implies its products and services will face some demand challenges.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Oxford Industries historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 10.7%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.
Final Judgment
Oxford Industries falls short of our quality standards. Following the recent decline, the stock trades at 8.6× forward P/E (or $58.47 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now. We’d suggest looking at a top digital advertising platform riding the creator economy.
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