Can This Down-and-Out Stock Be the Next Opendoor?

Key Points

• Stitch Fix's sales are increasing, and it's cutting its net losses.

• It's still losing active customers.

• It has an AI-powered model that sets it apart from competitors in apparel, but it may not take off until the economy improves.

• 10 stocks we like better than Stitch Fix ›

The story of real estate technology stock Opendoor Technologies is still unfolding, but it has definitely caught the title of meme stock of the year. After hitting a low of $0.51 in June, it has skyrocketed based on retail investor action and the hope of a solid recovery.

These kinds of plays can be very risky for the average individual investor for many reasons. One is that you can't time the market, getting in and out at the right time. In fact, although it's still up more than 1,500% from its June low, it's been falling this week.

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The retail investing community may be onto the next stock that could use a huge turnaround, and Stitch Fix (NASDAQ: SFIX) stock fits the bill. The fashion specialist, once touted as the next big thing in retail apparel, has been falling faster than last year's style trends. But is it ripe for a recovery?

Image source: Getty Images.

Fit for a fix

Stitch Fix developed a unique model for selling clothing for the fashionable woman, and now the fashionable man and child. It figures out your style through artificial intelligence (AI)-powered algorithms and sets each client up with a dedicated stylist who finds them the perfect clothing. Clients can choose to get "fixes," or boxes of clothing, on a monthly or other time-period basis, or they can choose to get them at random intervals. The company also opened up a Freestyle service to choose your own clothing.

Initially, this looked like a game-changer for people to shop online and have a personal stylist. It soared under lockdown conditions early in the COVID-19 pandemic, but that growth petered out fairly quickly, and the company hasn't been able to stage a comeback.

Founder Katrina Lake left the role of CEO when things were turning down, and current CEO Matt Baer has been doing an admirable job of cutting costs and getting the financials in order. But unless the customers come back in droves, there may not be so much upside here.

Unraveling, or getting stitched up?

For a turnaround to happen, there's got to be an increase in demand. Stitch Fix has been reporting some important progress, just not on that front.

Here's a rundown on some of the major results for the 2025 fiscal fourth quarter (ended Aug. 2):

• Revenue adjusted for an extra week increased 4.4% year over year.
• Revenue per active client (RPAC) increased 3% over last year to $549.
• Fix average order value increased 12% over last year, the eighth straight quarter of increases.
• Recurring fix enrollment increased over last year.
• Loss per share was $0.07, improved from $0.29 last year.
• Stitch Fix gained market share in apparel.

Furthering the positive side is that Stich Fix has no debt, so it isn't in danger right now.

On the negative side, the major negative was an 8% decrease in active clients. That's where Stitch Fix needs to improve, because active clients will fuel future growth. An increase in RPAC demonstrates that the company can activate its client base, but that won't be enough on its own to drive higher sales without new customers.

However, investors should keep in mind that it's operating in a tough retail environment. People just aren't spending on discretionary purchases like they do in a thriving economy, and the inhospitable environment makes it hard to know how the internal and external factors are impacting company performance.

Will retail investors strike again?

Similar to the Opendoor investing thesis, the case can be made that Stitch Fix will be able to mount a turnaround when people start spending on clothing again.

Management is making many changes to reflect consumer demand and boost engagement and sales. It has added new categories and more well-known brand names, both of which are resulting in higher sales. It's also leveraging its AI capabilities to offer services other apparel companies don't, like the option to create a fix based on a freestyle item and the ability to converse with a personal stylist on a regular basis.

Despite the stock drop after the fourth-quarter results were released, Stitch Fix stock is up 9% this year. However, it trades at the dismal price-to-sales ratio of 0.5. In general, that kind of valuation is a value trap more than a bargain.

There's enough potential here to imagine that retail investors could pull together an Opendoor-like rally. However, investors should stay on the sidelines until there's greater improvement.

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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool recommends Stitch Fix. The Motley Fool has a disclosure policy.