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Consumer discretionary businesses are levered to the highs and lows of economic cycles. Unfortunately, the industry’s recent performance suggests demand may be fading as discretionary stocks have pulled back by 11% over the past six months. This drop was worse than the S&P 500’s 5.5% loss.

Investors should tread carefully as many companies in this space are also unpredictable because they lack recurring revenue business models. Taking that into account, here are three consumer stocks we’re passing on.

PlayStudios (MYPS)

Market Cap: $194.5 million

Founded by a team of former gaming industry executives, PlayStudios (NASDAQ:MYPS) offers free-to-play digital casino games.

Why Do We Think Twice About MYPS?

1. Products and services aren't resonating with the market as its revenue declined by 4.4% annually over the last two years

2. Persistent operating losses suggest the business manages its expenses poorly

3. Push for growth has led to negative returns on capital, signaling value destruction

PlayStudios’s stock price of $1.55 implies a valuation ratio of 3.9x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including MYPS in your portfolio, it’s free.

Monarch (MCRI)

Market Cap: $1.48 billion

Established in 1993, Monarch (NASDAQ:MCRI) operates luxury casinos and resorts, offering high-end gaming, dining, and hospitality experiences.

Why Is MCRI Not Exciting?

1. 4% annual revenue growth over the last two years was slower than its consumer discretionary peers

2. Estimated sales growth of 2% for the next 12 months implies demand will slow from its two-year trend

3. Low returns on capital reflect management’s struggle to allocate funds effectively

Monarch is trading at $76.03 per share, or 8.2x forward EV-to-EBITDA. To fully understand why you should be careful with MCRI, check out our full research report (it’s free).

Purple (PRPL)

Market Cap: $85.45 million

Founded by two brothers, Purple (NASDAQ:PRPL) creates sleep and home comfort products such as mattresses, pillows, and bedding accessories.

Why Should You Sell PRPL?

1. Annual revenue declines of 6.3% over the last two years indicate problems with its market positioning

2. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

At $0.80 per share, Purple trades at 26.3x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why PRPL doesn’t pass our bar.