This Internet Retailer Trades At Just 1x Revenue, But Is it A Buy?

Wayfair stock (NYSE:W), an e-commerce marketplace that sells furniture and home goods, has declined by almost 26% year-to-date, compared to the S&P 500 which declined by about 7% over the same period. The stock also remains down by about 58% from its all-time highs seen in early 2021. There are a couple of trends driving Wayfair stock lower. Wayfair was seen as a play of two of the hottest pandemic trends, namely the surging demand for home improvement products as people spent more time at home through the pandemic, and the growing shift to e-commerce. However, with Covid-19 cases on the decline and traffic at brick and mortar stores rising, the stock has fallen out of favor with investors. Moreover, high-growth tech stocks, in general, have seen a sell-off, given the prospect of interest rate hikes and tighter monetary policy and this has also impacted Wayfair stock.

However, following the sizable correction, Wayfair’s market cap stands at just about $15 billion, trading at just about 1x consensus 2022 revenues. In comparison, the broader e-commerce sector trades at a P/S of over 3.5x. Does this make the stock a buy? Now, although Wayfair’s price to sales multiple is low, it remains quite expensive from an earnings standpoint, with the stock trading at over 83x projected 2022 EPS. Moreover, the stock doesn’t look like it will grow into this rich valuation anytime soon. Consensus estimates point to a declining trend in EPS between 2021 and 2022, with Wayfair revenue also poised to decline in 2021. The company’s operating margins also dropped from around 3% over the first nine months of 2020 to about 1% over the same period in 2021 partly due to supply chain challenges and rising costs. Considering this the stock doesn’t appear to be an attractive choice for long-term investors.

See our theme of E-Commerce Stocks which includes U.S.-based e-commerce platform players, logistics, and digital payment companies that stand to gain as shopping continues to move online

Below you’ll find our previous coverage of Wayfair where you can track our view over time.

[10/28/2021] Wayfair Stock Down 17% Over The Last Month. Time To Buy?

Wayfair (NYSE:W), an e-commerce marketplace that sells furniture and home goods, has seen its stock decline by almost 17% over the last month (about 21 trading days), compared to the S&P 500 which was up by almost 5% over the same period. There appear to be a couple of factors weighing on the stock. Firstly, there are concerns that online spending on home furnishings could slow down, with the Covid-19 fueled demand cooling off as the economy opens up and as people head back to brick and mortar stores. This could impact Wayfair’s topline growth rates. Moreover, retailers are also seeing meaningful supply chain issues and rising logistics costs through the Covid-19 re-opening.  This could impact Wayfair, which sources a considerable mix of its goods from China. This could impact the company’s margins in the coming quarters.

So is Wayfair stock poised to decline further or are gains looking more likely? Based on our machine learning analysis of trends in the historical stock price, there is a 66% chance of a rise in W stock over the next month (twenty-one trading days). See our analysis on Wayfair Stock Chance Of Rise for more details.

Five Days: W -7.2%, vs. S&P 500 0.3%; Underperformed market

(15% event probability)

  • Wayfair stock declined -7.2% over a five-day trading period ending 10/27/2021, compared to the broader market (S&P500) which rose 0.3% over the same period.
  • A change of -7.2% or more over five trading days has a 15% event probability, which has occurred 275 times out of 1775 in the last seven years.

Ten Days: W -2.3%, vs. S&P 500 4.3%; Underperformed market

(37% event probability)

  • Wayfair stock declined -2.3% over the last ten trading days (two weeks), compared to the broader market (S&P500) which rose by 4.3%.
  • A change of -2.3% or more over ten trading days has a 37% event probability, which has occurred 659 times out of 1770 in the last seven years.

Twenty-One Days: W -17%, vs. S&P 500 4.7%; Underperformed market

(10% event probability)

  • Wayfair stock declined -17% over the last twenty-one trading days (about one month), compared to the broader market (S&P500) which rose by 4.7%
  • A change of -17% or more over twenty-one trading days has a 10% event probability, which has occurred 178 times out of 1759 in the last seven years.

[8/10/2021] What’s Happening With Wayfair Stock?

Wayfair (NYSE:W), an e-commerce marketplace that sells furniture and home goods, has seen its stock rise by almost 15% over the last week (five trading days). This compares with the S&P 500 which has returned just about 1% over the same period. The rally comes after the company delivered a robust set of second-quarter results, as it continued to benefit from demand for home goods, despite the reopening of the economy following the Covid-19 lockdowns and more people heading back to physical retail stores. There are a couple of other trends that make the stock worth a look for longer-term investors as well. The U.S. housing market remains strong, driven by demand for larger houses and homes in the suburbs. Home ownership among younger people – who are more likely to shop online – has picked up through the pandemic. Moreover, the work-from-home trend is also likely to persist for a while, with the surge in Covid-19 cases in the U.S. over the last few weeks likely to delay the re-opening of offices. This should all bode well for Wayfair. Moreover, Wayfair’s valuation also remains attractive, in our view, with the stock trading at just about 1.7x forward revenues, with sales likely to grow by about 12% per consensus estimates. This compares with home improvement behemoth Lowe’s, which trades at about 1.5x forward revenues, despite its projected growth standing at just 2% for the current fiscal year.

See our theme of E-Commerce Stocks which includes U.S.-based e-commerce platform players, logistics, and digital payment companies that stand to gain as shopping continues to move online

[4/20/2021] What’s Happening With Wayfair Stock?

Wayfair (NYSE:W), an e-commerce company that sells furniture and home goods, emerged as a big winner through Covid-19, with its stock rising by over 3x over the last 12 months. However, the stock has largely moved sideways in recent months, trading at levels of around $320 per share, as a quicker than expected vaccine rollout and declining Covid-19 cases in the U.S. have hurt the narrative for “at home” stocks. That said, we think there are a couple of tailwinds that are likely to drive the stock in the near-to-medium term. Firstly, it’s likely that a sizeable amount of the stimulus checks mailed out as part of the $1.9 trillion Covid-19 rescue package will flow toward e-commerce spending, and companies such as Wayfair stand to benefit. Moreover, the U.S. housing market is also very strong driven by low interest rates and demand for larger homes and this could also help home goods players such as Wayfair. Homeownership among millennials – who are more likely to shop online – has also picked up through the pandemic. The millennial homeownership rate has climbed to 47.9% from roughly 40% just three years ago. Wayfair’s valuation also remains relatively attractive, with the stock trading at just 2x forward revenues, with sales likely to grow by about 12% per consensus estimates. In comparison, even brick-and-mortar major Lowe’s trades at close to 1.7x, despite the fact that sales could decline this year.

See our dashboard ‘What Factors Drove 4x Change In Wayfair’s Stock Over The Last Three Years?‘ for more details on what’s driving Wayfair’s stock price.

[3/23/2021] Why Is Wayfair Stock Up 4x Over The Last 3 Years?

The stock price for Wayfair (NYSE:W), an e-commerce company that sells furniture and home goods, is up almost 12x from levels seen in mid-March 2020 when the broader markets made a bottom due to the spread of Covid-19. This marks a significant outperformance compared to the S&P which has moved 75% from its March 2020 lows. Wayfair’s outperformance is driven by two major trends, namely the surging demand for home improvement products as people spent more time at home through the pandemic, and the growing shift to e-commerce. Wayfair stock is also up by about 300% since the end of 2017. So is the stock a buy? We think that Wayfair stock remains a solid pick for a couple of reasons, although returns will likely be lower compared to levels seen in recent years.

Most of the 4x gains of the last three years can be attributed to gains in Wayfair’s P/S multiple and its rising revenues. Looking at the company’s fundamentals, its total revenue has jumped from around $6.8 billion in 2018 to about $14.1 billion in 2020, as the active customer base more than doubled from around 15 million to about 31 million, with most of the gains seen through the Covid-19 pandemic. The company’s revenue per share grew from around $75 in 2018 to $148 in 2020, slightly slower than revenues, due to its share issuances which increased the share count by about 7% since 2018. Our dashboard, ‘What Factors Drove 4x Change In Wayfair’s Stock Over The Last Three Years?‘, has the underlying numbers. Wayfair’s P/S multiple expanded from about 1x in 2018 to 2.2x currently, driven by the recent acceleration in revenue growth, a stronger outlook for e-commerce companies, and the company’s gradually improving profitability. Wayfair’s EPS stood at $1.86 in 2020, up from a loss of $5.63 per share in 2018.

So What’s The Outlook For Wayfair?

Now, the decline in Covid-19 cases in the U.S. this year and the increasing rate of vaccinations will mean that spending in physical stores is bound to increase. However, we think that Wayfair will hold its own post the pandemic, driven by its massive selection, low prices, convenience, and its related content for home ideas which make shopping for the home easier. The company also operates under a variety of branded retail websites, namely the main Wayfair site, Joss & Main, AllModern, Birch Lane, and Perigold. Wayfair’s customer base is also highly loyal and should stick with the company post-Covid. Over Q4 2020, Wayfair noted that repeat customers placed 72.5% of total orders through the quarter, up from 68.6% a year ago. Investors also seem to think the company has a bright future post the pandemic, with the stock largely shrugging off the broader tech sell-off, rallying by about 35% year-to-date.

Wayfair’s valuation appears reasonable, with the stock trading at just about 2x projected 2021 revenues with sales likely to grow by 12% in 2021 and by about 20% in 2022, per consensus estimates.  In comparison, even brick-and-mortar major Lowe’s trades at close to 1.5x forward revenue, despite the fact that it is expected to see little growth over the next two years. The addressable market for Wayfair is also large, giving the company a lot of room to expand.  The company estimates the total U.S. market for home goods at approximately $450 billion. This compares to Wayfair’s revenue of $14 billion in 2020.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Feb 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 W Return -7% -23% 316%
 S&P 500 Return -2% -7% 97%
 Trefis MS Portfolio Return 1% -9% 259%

[1] Month-to-date and year-to-date as of 2/14/2022
[2] Cumulative total returns since the end of 2016

Trefis
Market Beating Portfolios
Trefis 
Price Estimates

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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