Retailers are adapting their business models as technology changes how people shop. Still, secular trends are working against their favor as e-commerce continues to take share from brick and mortars. This puts retail stocks in a tough spot, and over the past six months, the industry has pulled back by 2%. This drop was disheartening since the S&P 500 gained 5.7%.

Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. Keeping that in mind, here are two consumer stocks we think can generate sustainable market-beating returns and one best left ignored.

One Consumer Retail Stock to Sell:

American Eagle (AEO)

Market Cap: $2.18 billion

With a heavy focus on denim, American Eagle Outfitters (NYSE: AEO) is a specialty retailer offering an assortment of apparel and accessories to young adults.

Why Does AEO Worry Us?

1. 4.3% annual revenue growth over the last six years was slower than its consumer retail peers
2. Projected sales decline of 2% for the next 12 months points to a tough demand environment ahead
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its decreasing returns suggest its historical profit centers are aging

At $12.29 per share, American Eagle trades at 10.1x forward P/E. Dive into our free research report to see why there are better opportunities than AEO.

Two Consumer Retail Stocks to Watch:

AutoZone (AZO)

Market Cap: $67.53 billion

Aiming to be a one-stop shop for the DIY customer, AutoZone (NYSE: AZO) is an auto parts and accessories retailer that sells everything from car batteries to windshield wiper fluid to brake pads.

Why Will AZO Outperform?

1. Store expansion strategy is justified by its healthy same-store sales
2. Collection of products is difficult to replicate at scale and leads to a best-in-class gross margin of 51.8%
3. Strong free cash flow margin of 10.6% enables it to reinvest or return capital consistently

AutoZone is trading at $4,024 per share, or 24.5x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.

Ross Stores (ROST)

Market Cap: $47.91 billion

Selling excess inventory or overstocked items from other retailers, Ross Stores (NASDAQ: ROST) is an off-price concept that sells apparel and other goods at prices much lower than department stores.

Why Are We Positive On ROST?

1. Rapid rollout of new stores to capitalize on market opportunities makes sense given its strong same-store sales performance
2. Same-store sales growth averaged 3.5% over the past two years, showing it’s bringing new and repeat shoppers into its stores
3. Industry-leading 28.3% return on capital demonstrates management’s skill in finding high-return investments, and its returns are climbing as it finds even more attractive growth opportunities

Ross Stores’s stock price of $147.08 implies a valuation ratio of 22.3x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.

Stocks We Like Even More

When Trump unveiled his aggressive tariff plan in April 2025, markets tanked as investors feared a full-blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses.

Don’t let fear keep you from great opportunities and take a look at Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today

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