Passing On 3 Green Screen Stocks

I'm always going through the Green Screens, looking for the next high-quality, reasonably valued stock to highlight for everyone.

Part of the process, though, is pruning back the names in the Green Screens that DON'T meet the criteria for a green dot stock: growing sales, recurring revenues, an economic moat, great management, and solid financial footing.

Today, I want to briefly share some thoughts on 3 Green Screen stocks that don't quite make the cut, and why.

Warby Parker (WRBY)

Warby Parker is an online-focused retailer of eyeglasses, sunglasses, and contact lenses. Prospective customers get their lens prescription from an optometrist, and instead of picking out expensive frames at the doctor's office, take that prescription and go onto Warby Parker's website to find frames. The big value proposition is price, as Warby's frames are substantially less expensive than brands like Ray-Ban, Oakley, Nike, and others.

Since going public, Warby has opened over 250 retail locations, most with embedded optometrists, making it essentially just another eye care location. While glasses are usually purchased once a year, there are no switching costs for consumers, and eyeglasses have never been a brand-focused purchase for most people anyway. Growth has fallen from the 35% annual range when it went public in '21, down to just over 10% today. The stock, which closed at $55 on its first trading day, has fallen almost 70% since then. I'm not a huge fan and it gets a pass.

NEXTracker (NXT)

NEXTracker is another interesting solar equipment play. We've seen these come and go in the Green Screens, and I've written in the past about why I'm not a fan of investing in equipment plays, despite the overall attractiveness of the renewable energy space.

The same thesis applies for NEXTracker. Its panel positioning technology is interesting, and it's not hard to understand how it can increase solar yields by tracking the sun. However, the company relies on new equipment sales for virtually all of its revenue - no meaningful recurring revenue component here. That opens it up to competition on nearly all of its sales. There is no particularly strong moat either. There are a few direct competitors (Array Technologies being a notable one), and other ways to accomplish similar efficiency gains. Over time, I don't see NEXTracker being able to maintain profitable market share in the space. For those reasons, it is a pass.

Skechers (SKX)

Skechers has been a success story, an all-around footwear brand that has grown into one of the larger stocks in its industry, worth over $11 billion. The brand has (deservedly) always had a reputation as a lower-priced, "copycat" version of some of the more premium brands it competes with. Nike even filed a lawsuit years ago against the company alleging such! Their latest line, "Slip-ins", are clearly meant to capitalize on Hey Dudes' success.

While the brand is loathed amongst sneaker connoisseurs, it is popular with the more mainstream shoe buyer. The firm has grown 11% annually since 2019, even through the pandemic. My issue with footwear firms - and frankly, all apparel brands - is that there is no structurally recurring revenue, and no economic moat. Even brand loyalty isn't particularly strong in this space. Certainly Skechers doesn't have the brand cache of UGGs or HOKA, and I rejected the company behind those, Deckers. It's just not a great business even in the best of scenarios. Skechers is a pass.