Insiders And Institutions Bet Big On Stitch Fix, Inc

Stitch Fix, Inc Is Ready To Rocket Higher 

Insider and institutional activity in Stitch Fix NASDAQ: SFIX have been robust this year and point to a significant uptick in share prices at some point in the not-too-distant future. Insiders, specifically the largest institutional owners, have been buying the stock all year and that activity picked up noticeably in the 2nd half of the year. Total insider buying in 2021 topped 2.688 million shares for a total worth 2.46% of the shares outstanding. The buying brought total insider ownership to over 27% with some noteworthy activity among the largest holders of the stock. 

Working Capital Advisors, for one, upped its holdings by several million shares over the course of the 2nd half of the year and now holds more than 10% of the total. Others, like Vanguard and Jackson Square, also hold large positions worth mid-single digits in regards to the shares outstanding. The insider activity is echoed by the institutional activity at large. Institutional activity in shares of Stitch Fix, Inc was net-bullish all year and pushed total ownership to over 57.4%.

The Analysts Lower Their Targets For Stitch Fix but …. 

The analysts lowered their targets for Stitch Fix after the last earnings report but take that statement with a grain of salt. The Marketbeat.com consensus sentiment of 17 analysts is a firm Hold with a price target of $34.47. The $34.47 is down more than 50% from its high set in mid-2021 but still implies a healthy 78% of upside for the stock. The most recent activity included a round of price target reductions and rating downgrades but we view this as a low in sentiment due to the “wait and see” tone to the commentary. 

BMO Capital (Market Perform): "The burden of proof clearly lies on SFIX to execute as investors debate the return to top-line growth.”

The reason for the downgrades is the guidance which came in well below the analyst’s consensus estimates. The company is looking for $505 to $520 million in net revenue for FQ2 versus the $581 posted in FQ1 and the $586 million expected by the then Marketbeat.com consensus estimate. Needless to say, unless there was some significant change in business that was not disclosed, we view this guidance as incredibly cautious as there are no signs of slowing in the greater retail sphere. 

The Technical Outlook: Stitch Fix Is Setting Up For A Short-Covering Rally 

The short interest in shares of Stitch Fix grew over the last few quarters and was sitting near 17% coming into the New Year. This isn’t the highest we’ve seen recently but it is more than high enough to sustain a short-covering rally or even fuel a short-squeeze should the company outperform the consensus as we expect it to do. 

Looking at the chart, the short-interest has price action down to the lowest levels since the COVID-19 bottom in March of 2020 and overextending to the downside. The indicators are both diverging from the lows in evidence of underlying market weakness and the potential for bottoming and reversal. Price action may move down to retest the low at $14.55 but, if it does, we would expect to see bottom seekers and bargain hunters start scooping up shares. Longer-term, assuming the company outperforms as we expect, price action should begin bottoming in the first half of the year and begin moving higher by the second.