The current scenario for Wayfair stock is tricky.
Investors are torn over Wayfair’s (NYSE: W) stock situation. Despite its shares more than doubling this year up to early July, the store remains over 70% lower since reaching its peak during the pandemic. As an e-commerce specialist, it is favourably situated in a sector that could experience significant expansion in the upcoming years. Moreover, its potential earning capabilities appeal due to its asset-light selling approach.
However, Wayfair’s sales haven’t seen an upswing in years and are currently churning out hefty losses. With this ambiguous outlook, let’s consider whether the stock is worth buying, selling, or retaining.
A glance at the recent reports
The latest quarterly reports of Wayfair haven’t brought much positive news for investors, except for the cost reduction aspect. During the fiscal Q1, the company lost customers, with active shoppers dropping 15% to 21.7 million. This figure reached its zenith in 2020 when the pandemic-fueled demand pushed sales to over $14 billion, up from $9 billion in 2019. However, Wayfair has recorded two successive years of sales decline and is predicted to continue this trend into 2023.
Profitability isn’t entirely bleak, though. While the gross profit margin has decreased over the past two years, Wayfair’s 28% gross margin is significantly higher than shareholders’ pre-pandemic level of 24%. Nevertheless, the costs have grown faster due to significant delivery and IT infrastructure investments. It suffered a net loss of $1.8 billion last year and $355 million in the most recent quarter.
Considering the stock
Given these factors, at most, the stock seems suitable for maintenance. This is particularly true considering Wayfair’s shares have skyrocketed in recent months. At the beginning of 2023, the stock could have been bought at about 0.3 times sales, indicating a potentially appealing discount. But now, that valuation has escalated to 0.6 times sales.
You could invest in Walmart for a similar valuation and add a more stable and profitable retailer to your portfolio. Furthermore, you’d get a consistent dividend income, which isn’t expected from Wayfair shortly. The primary benefit that Wayfair offers is its potential for accelerated growth once the home furnishings industry recovers post-pandemic and starts expanding.
Future expectations
Investors can anticipate more insights into the business when Wayfair releases its fiscal Q2 results in early August. Most Wall Street experts are preparing for a persistent decline in sales—approximately 7%—and substantial losses.
Wayfair’s management may hint at a return to profitability this year, but only on an adjusted basis. It remains uncertain how effectively Wayfair can regain some of its lost customers as demand for home furnishings and upgrades increases. Hence, the stock seems too doubtful to be deemed a compelling buy.
There are more appealing retailers available at reasonable valuations at present. Firms like Tractor Supply and Ulta Beauty are gaining market share, exhibiting growth, and delivering solid operating profits. Keep your focus on such retailers, and watch Wayfair stock for now.
While Wayfair has an attractive business model and potential for growth, the company’s current financial situation presents some risks that investors need to weigh carefully. With sales declining and a sustained net loss, whether to buy, sell, or hold depends mainly on your risk tolerance and investment horizon. At this stage, keeping a close eye on the company’s upcoming financial reports might be prudent before making any decisive moves. Meanwhile, other retailers may provide a safer and more profitable alternative in the short to medium term.
