3 Consumer Stocks with Warning Signs

The performance of consumer discretionary businesses is closely linked to economic cycles. Unfortunately, the industry's recent performance suggests demand may be fading as discretionary stocks have pulled back by 1% over the past six months. This drawdown is a far cry from the S&P 500's 16.3% ascent.

While some companies have durable competitive advantages that enable them to grow consistently, the odds aren't great for the ones we're analyzing today. Taking that into account, here are three consumer stocks we're steering clear of.

One of the 'Big Four' airlines in the US, American Airlines (NASDAQ:AAL) is a major global air carrier that serves both business and leisure travelers through its domestic and international flights.

Performance surrounding its revenue passenger miles has lagged its peers

Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

At $13.12 per share, American Airlines trades at 31.2x forward P/E. Dive into our free research report to see why there are better opportunities than AAL.

As a majority-owned subsidiary of homebuilding giant D.R. Horton, Forestar Group (NYSE:FOR) develops and sells finished residential lots to homebuilders, focusing primarily on land acquisition and development for single-family homes.

Number of lots sold averaged -18.6% growth over the past two years and imply healthy demand for its products

Cash burn makes us question whether it can achieve sustainable long-term growth

Eroding returns on capital from an already low base indicate that management's recent investments are destroying value

Forestar Group's stock price of $26.03 implies a valuation ratio of 9.5x forward P/E. To fully understand why you should be careful with FOR, check out our full research report (it's free).

With a massive network spanning 155 distribution centers and delivering over 250,000 different food products, Performance Food Group (NYSE:PFGC) distributes food and food-related products to over 300,000 restaurants, convenience stores, theaters, and institutions across North America.

Products are reaching more customers as its unit sales averaged 6.9% growth over the past two years

Low free cash flow margin of 1.3% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders

Returns on capital are growing as management invests in more worthwhile ventures

Performance Food Group is trading at $91.84 per share, or 16.3x forward P/E. Check out our free in-depth research report to learn more about why PFGC doesn't pass our bar.

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