Is Stitch Fix (SFIX) A Smart Long-Term Buy?

Baron Funds, an investment management firm, published its fourth quarter 2020 “Baron Asset Fund” investor letter – a copy of which can be downloaded here. A return of 15.14% was recorded by its Retail Shares, and 15.21% by its Institutional Shares in the fourth quarter of 2020, both below its Russell Midcap Growth Benchmark that delivered a 19.02% return but above its S&P 500 index that was up by 12.15% in the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Baron Funds, in their Q4 2020 investor letter, mentioned Stitch Fix, Inc. (NASDAQ: SFIX) and emphasized their views on the company. Stitch Fix, Inc. is a San Francisco, California-based personal styling service provider that currently has a $5.6 billion market capitalization. Since the beginning of the year, SFIX delivered a -11.14% return, while its 12-month gains are impressively up by 260.36%. As of March 22, 2021, the stock closed at $52.58 per share.

Here is what Baron Funds has to say about Stitch Fix, Inc. in their Q4 2020 investor letter:

“Stitch Fix, Inc. is an online personal styling service ( that utilizes recommendation algorithms and data science to personalize clothing items based on size, budget, and style across all genders and ages. Stitch Fix users rank their style preferences across a series of images and receive their “fix” of curated apparel based on their results and personal stylists’ recommendations, which are informed by historical data from like-minded consumers. Under the company’s initial business model, users paid $20/box to receive a curated outfit of five items which they could try on at home before purchasing. This required a lot of customer effort and intensive reverse logistics, which limited the service’s appeal. However, Stitch Fix is in the process of leveraging its proprietary data and algorithms to enable direct retail purchases from its site. To support its new product roadmap, Stitch Fix hired President Elizabeth Spaulding, with 20 years of previous experience at Bain where she led its digital practice, and CFO Dan Jedda, with 15 years of previous experience at Amazon. We are optimistic about the prospects for the company’s new business model under its expanded management team.

We believe the company’s new “direct buy” offering expands its total addressable market to include the nearly $400 billion U.S. apparel market, which will be supplemented by international opportunities. Stitch Fix recently expanded its direct buy capabilities with the launch of “Shop by Category,” a highly personalized digital shopping feed that leverages individual clients’ data-driven “style graph,” which is powered by a wealth of proprietary data about shoppers’ preferences. The richer customer experience has driven increasing direct buy penetration across both men’s and women’s categories. We believe Stitch Fix will continue to successfully penetrate the market for traditional retail purchases.

We believe that Stitch Fix will also be better able to optimize its inventory management to drive faster conversion rates and stronger revenue growth, while also improving capital efficiency. Management envisions a dynamic marketplace with active vendor management, pricing and demand forecasting, and increased high-margin private label penetration. The company is optimistic that its model can be successfully expanded into new categories like furniture, décor, beauty, resale, and luxury. We believe the company is poised to more than double its sales and meaningfully expand its profitability over the next five years.”


Our calculations show that Stitch Fix, Inc. (NASDAQ: SFIX) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Stitch Fix, Inc. was in 32 hedge fund portfolios, compared to 25 funds in the third quarter. SFIX delivered a -27.17% return in the past 3 months.