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Stitch Fix (Nasdaq: SFIX) stock has been in a steep sell-off as some investors worry about the company’s future. The shares were trading at $3.42 on Thursday, the lowest level since June 6th of this year. They have dropped by over 96% from their all-time high, bringing its market cap to over $390 million.

The fall from grace

Stitch Fix was once a high-flying disruptor in the fashion industry. It had millions of users from the United States. As it grew, the company expanded its business to target children and men.

StitchFix, like other companies in the industry, boomed during the Covid-19 pandemic. Inflation was low and most people were using shopping online. Many people were also receiving free money from the Federal Reserve.

Stitch Fix, like Boohoo, lost momentum in 2021 as its business peaked. It also struggled with rising inflation and supply chain disruptions that ensued. As a result, its profit margins thinned as the company lost thousands of users.

The most recent results showed that the company’s woes continued this year. Its revenue dropped by 20% YoY to $395 million. Its active customers dropped by 11% to 3.5 million. In addion to falling users, these customers are spending less. 

The next key catalyst for the Stitch Fix stock price will be its upcoming results. In its recent results, the company guided to its revenue coming being between $365 million and $375 million. This will translate to its EBITDA being between $0 and $10 million. Analysts expect its revenue to be $371 million.

I have concerns about Stitch Fix. First, the company is seeing increased churn as interest rates rise. Recent data shows that many Americans have started to default on their loans. At the same time, millions of Americans are expected to start paying back their student debt. All these factors could see the company’s weakness continue.

Stitch Fix stock price forecast

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The daily chart shows that the SFIX stock price has been in a strong bearish trend since 2021. It has remained below the descending trendline shown in red. The stock has moved below the 50-day moving average and is a few points above the lower side of the ascending line. It has also moved below the Ichimoku cloud.

Therefore, the outlook for the stock is bearish, with the next key support to watch will be at $2.60, the lowest level in December. The alternative is where the shares bounce back and then retests the upper side at $5 when the company publishes its results on September 18th.

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