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Stocks, Trading  | July 23, 2019

For investors looking for a discount, now's the time to buy shares of Stitch Fix, according to analysts who cover the company. 

Shares of the clothing subscription company gained more than 4% Monday when Stifel Nicolaus upgraded its rating to "buy" from "hold" and maintained its price target of $35. 

Shares of Stitch Fix have lost more than 16% this month and are trading at about 23% below Stifel's price target. While the company's active-user growth has slowed, the team at Stifel wrote that they are confident that management will continue to grow average revenue per user. 

"We believe the recent weakness offers an attractive entry point," the analysts wrote. 

Recent weakness aside, Stitch Fix has had an upwards trajectory since its founding in 2011. Since then, it's listed as a public company and surpassed the $1 billion mark in 2018, when it posted net revenue of $1.2 billion and a user base of 3 million customers. It's main competitors include Rent the Runway, Frank and Oak, and Le Tote, which offer similar subscription service boxes for clothing and other fashion. 

Going forward, Stifel says there are tailwinds to revenue and user growth on the horizon. Stitch Fix now offers greater personalization of monthly boxes through its Style Shuffle, and has begun to focus on attracting higher quality customers which will likely help its client base grow. The company also continues to grow its men's business, and the segment's so-called keep rate has improved year-on-year in every quarter since launching in 2017. 

In addition, Stitch Fix has hinted that it may take a note from some of its competitors and start offering rental options of clothing. During the last earnings call, CEO Katrina Lake said that rental could be a future opportunity for the company. Rent the Runway has had major success with this model, where instead of buying clothing, clients simply rent and return items when they're done. 

Analysts believe that the company is still in the early stages of growth, a sentiment expressed by the CFO Paul Yee who said that the company was still in its "second inning at best" in terms of automation and efficiency, which it will continue to develop. Going forward, management has estimated a growth rate between 20-25%, and analysts at Stifel are not far behind — they model a growth rate of around 19% for the company through 2022. 


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