You Might Not Be Too Late to the Stitch Fix Inc Stock Party

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No, Stitch Fix Inc (NASDAQ: SFIX ) isn't a sewing patch kit, although it is a tech company focusing on the fashion world. The company provides a subscription-based personal shopping and delivery service for both men and women. You know how much the market likes subscription-based revenue, right? If not take a quick glance at Stitch Fix Stock.

That's because rather than a one-time sale, companies can continue to milk customers of their revenue, providing a more dependable stream of income for the company. Investors prefer consistent over erratic and aside from the dependability portion, companies can often generate more sales. So long as the customer feels they gain value, it's a win-win.

Nowhere is this more-prevalent than in the cloud space. Companies that convert to a subscription-based business model have had plenty of success. Just look at names like Adobe Systems Incorporated (NASDAQ: ADBE ) or Red Hat Inc (NYSE: RHT ). Obviously, Wall Street is loving the subscription business with Stitch Fix too.

Shares were exploding Friday, higher by more than 20% and gaining momentum throughout the session. Spurring the move is the company's earnings per share and revenue beat, alongside better-than-expected guidance.

The Quarter and What's Ahead for Stitch Fix Stock

Earnings of 9 cents per share came in triple what analysts were expecting. Sales of almost $317 million came in $10.4 million ahead of expectations and grew an impressive 29% year-over-year. That alone got shares moving higher 11% in after-hours trading.

However, management also gave a boost to the top and bottom range of its full-year revenue guidance, as they now expect to generate $1.22 billion to $1.23 billion in total sales. Analysts were only looking for $1.21 billion in sales. Given that we're already three quarters into SFIX's fiscal year, a bump here is nice to see. It means the company expects a strong fourth quarter as well.

As if an earnings beat and bump to guidance weren't enough, management threw even more gasoline on the bullish fire. The company is planning to launch a kids lineup.

In a quarter were SFIX just reported 30% growth in active clients (up to 2.7 million), the additional lineup should bode well for its business. Further, in an economic backdrop such as the one we're currently in, one would expect a business like Stitch Fix to do quite well.

Clearly that's the case, with business rolling pretty strong. Launching the Stitch Fix Kids lineup ahead of the back-to-school season should bode well for Stitch Fix Stock as well. Being able to tap into existing customers should lead to a strong adoption right off the bat.

Trading Stitch Fix Stock

Given that the company now expects to do sales of at least $1.22 billion this year, a market cap just under $2.4 billion isn't too expensive. Admittedly SFIX is expensive on an earnings basis. But for a company that's forecast to grow revenue another 20% next year, one could certainly make a case that it should trade at 2.5 times or even 3 times sales.

After all, Stitch Fix is profitable, expanding its lineup and is clearly a hit with its customers. Plus, there's always the M&A factor that has to be considered, particularly from large retailers that are struggling for growth.

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Keep in mind that Stitch Fix has a 52-week high of roughly $30. So while it seems like Friday's gains were big, and they were, there could easily be more upside.

There's clearly support down at $19, not that anyone wants to see Stitch Fix stock fall that far (short of the bears). Mapping out resistance is a bit harder based on which point you start off with or whether one uses the highs or closing prices. In either scenario, Stitch Fix stock appears to be above downtrend resistance.

While there can be an argument over downtrend resistance, there's little debate about resistance at $25. If SFIX can get above that mark, $30 is clearly in sight.

Despite Friday's big move, shares are not yet overbought, which bodes well for the bulls. It will take another powerful move to put it above this mark, but if it does and can consolidate north of $25, Stitch Fix could have plenty of gains left.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell . As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.

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The post You Might Not Be Too Late to the Stitch Fix Inc Stock Party appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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