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Trader: this company could be the “Netflix of apparel”

Key Points
  • Josh Brown, Ritholtz Wealth Management CEO, bought Stitch Fix.
  • It "might be the answer" to apparel companies that have had trouble building their online businesses, he said on Monday's "Halftime Report"
  • The company topped Q3 analyst estimates when it reported earnings on June 7, and noted that active clients grew 30% compared to a year earlier.

On Monday Ritholtz Wealth Management CEO and "Halftime Report" trader Josh Brown bought Stitch Fix since he believes it could become the "Netflix of apparel."

The San Francisco-based company is a clothing subscription service. Users fill out a style profile online and then receive a package with personally-curated clothing and accessories from the company. Subscribers can decide what they would like to buy from the box, and they can return the remaining items free of charge.

Trader: Here's why I bought Stitch Fix

As e-commerce growth accelerates and traditional retailers struggle to keep up, Brown believes Stitch Fix could be a bright spot in the sector.

"If you look at the trouble the apparel companies have had building an online business fast enough to offset the decline in foot traffic Stitch Fix might be an answer," he said on Monday's "Halftime Report." "It may become the Netflix of apparel."

Brown also likes the fundamentals of the company. He noted that it is "growing its user base by an outstanding number" and that it's also showing accelerating revenue. "I think they found a way to build a business in apparel online that just absolutely delights their customers," he said.

Katrina Lake, CEO of Stitch Fix and others, celebrate their IPO at the Nasdaq, November 17, 2017.
Stitch Fix soars after online styling service says active clients grew 30%

Stitch Fix went public on November 17, 2017, and shares are up 81% since through Monday's close. The company most recently reported quarterly results on June 7 that topped analyst estimates for both earnings and revenue, and the number of subscribers grew 30% in Q3 compared to a year earlier. The stock has soared 33% since the company announced results.

Despite Brown's bullish stance on Stitch Fix -- he's trying it out both as a customer and an investor -- he did note that it's not for the "faint of heart." While he said it could become the "Netflix of apparel," he said it could just as easily follow the fate of another subscription service that hasn't fared nearly as well -- Blue Apron. The meal-kit delivery company went public on June 29, 2017, and shares are down 67.8% since as the company struggles to maintain long-term subscribers.

Brown summed up his opinion on Stitch Fix saying "it's a speculative play and I hope to add more to it...but it's to be seen how sustainable growth will be."

Stitch Fix has a $2.69B market cap, and trades at 232X forward earnings.

Josh Brown owns Stitch Fix.