Shares of Stitch Fix Inc. are on a roll.
The online styling service’s stock rose as much as 11.5 percent Tuesday and closed up 6 percent at $32.99 after KeyBanc analyst Edward Yruma initiated coverage on the stock with an overweight rating and a target price of $38.
The run-up left Stitch Fix with an increase of more than 20 percent for the month so far and a gain of 68 percent since the San Francisco-based company reported fiscal third-quarter gains on June 7.
“Stitch Fix’s unique combination of data-driven human curation will allow it to gain share in the $340 billion-plus soft lines market,” Yruma wrote in his note initiating coverage.
In particular, he said the company’s approach “is a significant advantage relative to the traditional apparel/retail competitive set and allows it to build a scalable, yet highly human, recommendation model.”
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Yruma was referring to the firm’s operating m.o., which uses artificial intelligence to track user preferences, purchase history and other data for merchandise selection and then hands the process over to human stylists, who step in to curate the “fixes.” Unlike a strictly people-powered process, Stitch Fix’s model can work in a high-volume, high-growth environment.
Amazon is working on a similar approach with its Prime Wardrobe try-before-you-buy service. But it’s not quite the same, as William Blair’s Ralph Schackart noted in a report earlier this month.
Schackart pointed out that Prime Wardrobe places the onus of selection on customers: “With Prime Wardrobe now formally launched with no new features, we believe investors can get comfortable that Stitch Fix’s stylist recommendation service is substantially different from Amazon’s self-select try-before-you-buy service.”
Katrina Lake, Stitch Fix founder and chief executive officer, also underscored that distinction in her fireside chat at Code Conference in May.
Meanwhile, Stitch Fix also made its foray into the children’s market official. After stating its intentions last month, the company launched Stitch Fix Kids on Tuesday. The service allows parents to sign up for children’s clothing subscriptions.
“We think share gains will continue in the core women’s market, and that men’s, plus, and now kids will help to further accelerate growth,” Yruma said.
The developments had CNBC’s Jim Cramer regretting his earlier calls for investors to avoid Stitch Fix, saying, “This is more than just a cool concept. It’s a well-executed concept, and that makes a big difference.”
That marks a turnaround from what was something of a rocky start for the company in the public market. Stitch Fix’s November IPO raised $120 million, but the stock briefly fell below its offering price of $15 a share as some greeted the concept skeptically.
Now, Stitch Fix has considerably more believers with a market capitalization of $3.2 billion and sales on track to top $1 billion this year.