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 16.7% over the past six months, outpacing S&P 500 by 3.4 percentage points.
Regardless of these results, investors should tread carefully as many companies in this space are unpredictable because they lack recurring revenue business models. On that note, here are three consumer stocks we’re swiping left on.
Zillow (ZG)
Market Cap: $17.93 billion
Founded by Expedia co-founders Lloyd Frink and Rich Barton, Zillow (NASDAQ: ZG) is the leading U.S. online real estate marketplace.
Why Is ZG Risky?
- Sales tumbled by 6.6% annually over the last five years, showing consumer trends are working against its favor
- Low free cash flow margin of 11.4% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $71.90 per share, Zillow trades at 33.7x forward P/E. If you’re considering ZG for your portfolio, see our FREE research report to learn more.
PENN Entertainment (PENN)
Market Cap: $1.82 billion
Established in 1982, PENN Entertainment (NASDAQ: PENN) is a diversified American operator of casinos, sports betting, and entertainment venues.
Why Should You Sell PENN?
- 11.9% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
PENN Entertainment is trading at $13.69 per share, or 13.8x forward P/E. Dive into our free research report to see why there are better opportunities than PENN.
United Parks & Resorts (PRKS)
Market Cap: $1.93 billion
Parent company of SeaWorld and home of the world-famous Shamu, United Parks & Resorts (NYSE: PRKS) is a theme park chain featuring marine life, live entertainment, roller coasters, and waterparks.
Why Do We Think PRKS Will Underperform?
- Number of visitors has disappointed over the past two years, indicating weak demand for its offerings
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
United Parks & Resorts’s stock price of $35.44 implies a valuation ratio of 9.2x forward P/E. To fully understand why you should be careful with PRKS, check out our full research report (it’s free for active Edge members).
High-Quality Stocks for All Market Conditions
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. 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 for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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