Embracing AI, biotech, and renewable energy stocks has become commonplace, but the underbelly of the financial world reveals a cohort of consumer discretionary stocks short sellers are placing their bets against.

The U.S. economy, akin to a marathon runner navigating hurdles of high inflation and mounting interest rates, remains robust. However, the enduring sustainability of this financial resilience hangs by a thread, vulnerable to unexpected jolts akin to a ship treading precarious waters.

Inflation still holds its head high, with recent deliberations from Federal Reserve indicating a potential slowdown in its 2024 roadmap – raising concerns that the prolonged high rates may cast a shadow over economic growth. Industries like consumer discretionary are poised to bear the brunt of this inevitable shift, serving as a harbinger of turbulent times ahead.

Aside from these macro-driven market forces, a slew of company-specific issues plagues certain consumer discretionary stocks. Ranging from lackluster fundamentals to bloated valuations, these concerns have snowballed into formidable challenges that short sellers are eager to exploit.

Highlighted below are the top seven consumer discretionary stocks falling out of favor with short sellers. Let’s delve deeper into these individual cases to determine whether the bears are standing on the right side of the divide.

Carvana (CVNA)

Resurrecting itself twelvefold from the depths of its 52-week low, Carvana (NYSE:CVNA) has been the golden goose for short-squeeze enthusiasts, showering riches but inviting calamity for shortsellers. Despite facing significant losses in 2023 and enduring a rough start in 2024, the short interest hovering around 33.8% of the inventory remains steadfast.

Though Carvana showcases an uptrend in gross margins, analysts remain skeptical about the company’s profitability, with net losses projected to loiter into 2026. Even if Carvana achieves the optimal end of expectations and navigates to consistent profitability, its stock stands perched at a lofty valuation compared to peers based on such ambitious projections.

Kura Sushi USA (KRUS)

Kura Sushi USA (NASDAQ:KRUS) stands at the crossroads of short sellers, with 24.7% of its circulating shares put up for sale.

Despite a trajectory of accelerated growth, with revenue estimated to soar by approximately 27% in the upcoming fiscal year (culminating in August 2025) and a profit doubling during this span, the colossal valuation of 296.2 times forward earnings looms ominously.

Moreover, the precarious positioning of KRUS stock, perched on a pedestal of perfection, teeters perilously. Even meeting projected outcomes could play the part of the fateful harp, steering the stock southwards rather than skywards, drowning investors in a sea of disappointment.

Kohl’s (KSS)

At first blush, Kohl’s (NYSE:KSS) may appear as low-hanging fruit for a short squeeze. Trading at a modest valuation of 10.6 times forward earnings, the department store chain seems poised for a revamp.

Despite ongoing fiscal strangulation due to acute inflation, there remains a glimmer of hope that favorable forecasts anticipating an inflation reprieve may steer the company towards the path of financial recovery.

Yet, delving deeper reveals a tapestry of concerns – grappling with activist investor intercession and foretelling of another year of lackluster performance in 2024, Kohl’s plunges into the echelons of uncertainty. Echoing sentiments of InvestorPlace’s Jeremy Flint, the gradual metamorphosis into another Sears looms large on the horizon, emblematic of the stark inability to transition into an omnichannel retail entity.

Luminar Technologies in The Shadow of the Star Market

Lidar stocks, like Luminar Technologies (NASDAQ: LAZR), once shone brightly in the starry skies of the 2021 bull market. However, the glamour has dimmed considerably since then, with these autonomous driving technology companies falling out of favor faster than a shooting star disappears into the night.

As if caught in a cosmic spiral, LAZR stock has plummeted by over 95%, crashing down to just over $2 per share. The short-sellers have seized this momentous plunge, hoping to profit from the debris left in the wake. It appears they are not ready to close the chapter just yet, with a significant 26.9% of LAZR’s outstanding float still held short. This relentless gravitational pull towards zero force is evident in the shorts’ convictions.

The dwindling demand for electric vehicles, persistently high net losses, and vanishing cash reserves have painted a dark canvas for LAZR. Short sellers have drawn their targets on this once-bright star in the tech constellation. The warning signs are as clear as night and day, urging investors to steer clear of this celestial collision in the making.

The Fading Light of Lucid Group

In the battle of electric vehicle manufacturers, Lucid Group (NASDAQ: LCID) finds itself engulfed in the shadows of doubt. The road ahead seems plagued with hurdles, as this early-stage EV company grapples with a dilution spiral, casting a dim light on its prospects as a major player in the industry.

Both production and sales have fallen drastically short of initial projections, leaving Lucid stranded in a desolate expanse of operating losses. To navigate through this barren terrain, the company has resorted to raising capital by issuing more shares of stock – a lifeline primarily clutched by its majority owner, Saudi Arabia’s Public Investment Fund (PIF).

As the share count mounts, eclipsing any signs of underlying improvement, the per-share value of LCID stock has dwindled, fading like a distant star on the verge of collapse. With 28.9% of LCID’s outstanding float tethered to short positions, it appears that the symphony of the stars is playing a melancholic tune for this once-bright prospect in the EV universe.

Lovesac: Sofa So Bad

The home furnishings company Lovesac (NASDAQ: LOVE) has found itself entangled in a web of short-selling woes, garnering a hefty 26.1% of its outstanding float in short positions. What was once a cozy seat in the world of consumer discretionary stocks has now become a battleground of pessimism and doubt.

While previously, optimism had adorned LOVE stock like a well-cushioned sofa, recent financial results have painted a different picture. The company, though able to surpass expectations in recent quarters, has failed to convince analysts of a brighter tomorrow, leading to a downward revision in future forecasts.

Once predicted to earn $3 per share by the fiscal year ending January 2025, the consensus now predicts a meager $2.09 per share, with looming shadows of further downgrades. As highlighted by InvestorPlace’s Matthew Farley, Lovesac struggles persist in enhancing its margins, making the road to recovery as comfortable as a lumpy sofa on a rainy day.

Wayfair: Lost and Unfound

The Tale of Wayfair (W) Stock: A Dance Between Bullishness and Caution

A Closer Look at Wayfair’s Recent Ups and Downs

At the heartbeat of the stock market lies the ebb and flow of optimism and skepticism. Such is the tale of Wayfair (NYSE:W), where sell-side analysts like Oliver Wintermantel from Evercore ISI are painting a rosy picture with an “outperform” upgrade. Wintermantel’s optimism is grounded in Wayfair’s successful cost-cutting strategies, foreseeing a shining future as the housing market stages a recovery.

Divided Perspectives: Sell-Side Analysts vs. Short-Sellers

As the Wall Street analysts dust off their rose-tinted glasses for W stock, a different narrative unfolds in the realm of smart money short-sellers. A substantial 23.6% of Wayfair’s outstanding float is held in short positions, hinting at a cloud of doubt lingering over the company’s prospects. Could it be that the anticipated late-year recovery is already baked into the stock price, leaving little room for error?

Riding the Rollercoaster: Valuation Concerns for Wayfair

Every rise has its fall, and for Wayfair shareholders, valuation concerns loom large on the horizon. The current trading price reflects approximately 60 times the estimated 2024 earnings and nearly 30 times the estimated 2025 earnings. A precarious balance is set, hanging on the hopes of a late-2024 housing resurgence. Should this anticipated rebound falter, Wayfair might find itself bracing for a significant market correction.

On this literary journey into the world of Wayfair stock, Thomas Niel stands as the voice behind the wisdom offered, steering investors through the tumultuous waves of market sentiment. His intricate analyses provide a blueprint for those navigating the volatile seas of single-stock investments.