Today we will take a look at Wayfair and give it a "fair" stock forecast. Wayfair’s price action this year has been on a roller coaster ride that has been crazy enough to make the strongest stomach sick.
Let’s take a look under the hood and see if this company is still looking like a buy after its recent huge run. Not to mention the overall markets volatility in June.
What Is Wayfair?
- Wayfair believes “everyone should live in a home they love.” They offer over 14 million products in the furniture and home-goods verticals across 5 websites. They're dedicated to making it easy – and even fun – to find exactly what you want for your home.
The state-of-the-art Wayfair app has features like “view in room”. This allows you to see the product in 3-D in your home before purchasing it.
A “room planner” allows you to save several pieces of furniture and then arrange them within a space to see how they all look together. The way it all operates it makes you feel like ANYONE can be an interior designer.
Besides the main Wayfair site, their other brands are Joss & Main, AllModern, Birch Lane, and Perigold. Each brand is tailored to appeal to specific demographics, tastes, and/or price points.
Wayfair also has approximately 80 “house brands,” which are only available from Wayfair sites. These house brands make up about 70% of the company’s sales.
1. Wayfair Stock History
What became Wayfair was founded in 2002 as CSN Stores. CSN was a mashup of the founders’ names; Niraj Shah, who is still the CEO and co-chair, and Steve Conine, the other co-chairmen of the board of directors.
Shah and Conine were college buddies, studying engineering at Cornell. The duo had run two previous companies before starting CSN Stores.
The first website was racksandstands.com (no longer around) which sold media stands and storage furniture. They grew over time, adding more products and websites until they had over 200 online shops in 2011.
The bursting of the “dot-com bubble” actually played in their favor – they were buying up all kinds of small companies that were unable to continue operations on their own.
2. Wayfair Stock Financials
Wayfair has had tremendous revenue growth for years; the 34% pace in 2019 was the slowest they’ve had since going public.
They booked over $9.1 billion in revenue last year. Almost double one of their largest pure-play competitors, Ashley Furniture (Ashley Furniture is privately held, as are IKEA, Rooms-To-Go and Bershire’s Nebraska Furniture Mart.
The only real pure play publicly traded furniture retailer I found was Mattress Firm ($MFRM) and Pier One Imports, $PIRRQ; which may not be a going concern for much longer. Walmart, Target, and Amazon.com are all major players in the home-goods/furniture space as well).
Despite this rapid revenue growth, however, net losses continue to grow as well. Wayfair had net income of -$985 million in 2019, almost 49% more than the $504 million they lost in 2018.
The balance sheet also has some red flags. Their $1.5 billion in current assets are supported by just $1.3 billion in current assets.
And a debt to income ration of 1.42 signals a lot of leverage in the company, which may make it difficult to raise cash in bad times.Wayfair reported Q1 results on May 5th, showing year over year revenue growth of 19.8% and a loss of $285.9 million. The company announced a 90% increase in sales for the month of April. This caused a huge run up in its stock price. See below for more on the price action.
3. Wayfair Stock Forecast on the Technicals (The Good Stuff)
The roller coaster ride of Wayfair’s stock price really goes all the way back to September of 2018, when it was trading near $150/share.
By Christmas that year, it fallen to $85, then climbed again to $170 by March of 2019. From there, it took a slow and steady decline until the rapid decline that basically all assets experienced in March. This is when Covid-19 fears took hold of the markets.
Wayfair found the bottom around $22, then took off, recovering to $134 on May 4th. The earnings report on May 5th brought about a huge gap to $176.
And the stock continued going up for the next several days to an intra-day high of $197.06 on May 12th before pulling back somewhat to where we are now.
The stock chart is currently trading in a nice symmetrical triangle pattern/bull pennant and looks like it could be breaking out. The big question for a technical trader is if they are chasing or buying too high here.Learn more about trading symmetrical triangle patterns, which are something stock traders look at carefully before placing their trades.
To Buy or Not to Buy
That is the question. Wayfair has had some major tailwinds during the nationwide lock downs as their bricks-and-mortar competitors were forced to close.
People spending more time at home, suddenly having to work and educate from home, helped push Wayfair’s sales up. Maybe they needed a new desk, decided they didn’t that lamp in the corner.
Or were just “bored shopping.” Whatever the reasons, Wayfair had a huge influx of new users over the last quarter. Analysts are expecting those numbers to continue looking good for the current quarter as well.
But for someone looking at long term investing, the real question is: What happens as the economy reopens and we begin the process of normalization?
Wayfair management believes they can maintain 20% per year revenue growth for the next several years and will achieve profitability by 2021.
Some analysts are even predicting profit in the current quarter, which will be reported in August – at least on an adjusted basis (“adjusted” earnings ignore certain one-time costs and non-cash items like depreciation).
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