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Cramer's new call on Stitch Fix: Seize on pullbacks in this soaring stock

Key Points
  • CNBC's Jim Cramer renews his call on Stitch Fix, an online clothing and accessories retailer that uses algorithmic technology to build customized outfits for its clients.
  • The "Mad Money" host cites the company's latest earnings report and new initiatives as reasons for his reversal.

Last November, CNBC's Jim Cramer told investors to avoid the stock of Stitch Fix, a personal styling company that sends its users curated shipments of clothes and accessories, because of the inherent risk.

But the risk seems to have been worth the reward.

"Man, I wish I’d circled back to this one, because when Stitch Fix reported a month ago, they shot the lights out," the "Mad Money" host said. "The quarter was so incredible that the stock instantly pole-vaulted up more than 25 percent. Incredibly, since then, it just keeps climbing; it’s now surged 64 percent since the end of May."

Cramer's initial qualm about Stitch Fix, which uses proprietary algorithms and human stylists in tandem to build customized outfits for its customers, was the company's ability to prove itself in the public arena.

Its model appeared to seize on millennials' distaste for brick-and-mortar shopping and center on ease of use, allowing customers to order personalized outfits online and return items they didn't want to keep for free. Stitch Fix's website offers one-time and automatically scheduled shipments as well as the ability to buy individual items.

And although it took Cramer a few quarters to warm up to Stitch Fix, on Monday, he reversed his call on the new-age retailer.

"Clearly I should've been more positive" on the stock, he said, pointing to Stitch Fix CEO Katrina Lake's speech at the 2018 Code Conference in California. In it, Lake said Stitch Fix wasn't trying to sell itself to Amazon, adding that her company has "a lot of value in and of itself."

A week later, Stitch Fix reported third-quarter earnings, boasting a 30 percent increase in active clients and touting new initiatives like selling standalone items and expanding into men's and plus-size categories. It also announced introduced Stitch Fix Kids, a new segment focused on children's apparel.

A Stitch Fix representative declined to comment on Cramer's analysis.

And while many other newly public, tech-focused stocks have pulled back in the last month as trade war fears surfaced, shares of Stitch Fix have kept rallying, up about 15 percent for the month of July.

Shares of Stitch Fix closed down 3.98 percent on Monday after hitting a new 52-week high intraday.

"This is more than just a cool concept. It’s a well-executed concept, and that makes a big difference," Cramer said.

"Really, though, we need to judge this one on a price-to sales-basis like we do with so many other newly public companies," he continued. "Stitch Fix sells for just 2.2 times next year’s sales forecast. I’ve gotta tell you, for a company with a 29 percent growth rate, that’s darned cheap."

Still, the "Mad Money" host was wary of the stock's monster run, particularly its 23 percent gain last Thursday and Friday, and advised interested investors to bide their time before buying in.

"I actually hope Stitch Fix gives us more of a sell-off so I can really push it hard," Cramer said. "After that incredible quarter they reported a month ago, any sustained weakness here, I think, would be a gift. I wouldn’t necessarily chase Stitch Fix up here at $31 and change; however, if you can get it for under the $30 level, I think it makes sense to start [building] a position. And, once again, I simply didn't anticipate how great this business or the model really is. That's my bad — it's all on me."

WATCH: Cramer reverses his call on shares of Stitch Fix

Cramer's new call on Stitch Fix: Seize on pullbacks in this soaring stock

Disclosure: Cramer's charitable trust owns shares of Amazon.

Questions for Cramer? Call Cramer: 1-800-743-CNBC Want to take a deep dive into Cramer's world? Hit him up! Mad Money Twitter - Jim Cramer Twitter - Facebook - Instagram - Vine Questions, comments, suggestions for the "Mad Money" website?
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Key Points
  • Shares of clothing subscription box company Stitch Fix rose 12 percent Friday.
  • The company went public in November and has seen its stock double in value since.
  • The stock closed at a fresh all-time high of $32.41.