Wayfair Inc. (W) Stock Analysis

Updated: Feb 4, 2020

Current price: $103.03

Market cap: 9.54B

Overall assessment: SELL

Why did Wayfair Inc. (W) pique my interest?

  1. Recently it broke out of the downward channel after bouncing off an 80$ support line. Looking at the stock behavior in the future next weeks/months.

  2. It seems that everyone is talking about it. There is continuous interest from the public awaiting for something big for the company and the stock.

  3. The company is growing in revenue.

  4. The website seems nice, and it seems that customer service is great.

Wayfair Inc. (W) Overview: company, category description

Wayfair, Inc. engages in an online home furnishing store. It offers a selection of home furnishings and decor across all styles and price points. It operates through the U.S. and International segments. The U.S. segment consists of amounts earned through product sales through the Company's five distinct sites in the U.S. and through websites operated by third parties in the U.S. The International segment is composed of earnings through product sales in international sites. The company was founded by Steven K. Conine and Niraj S. Shah in May 2002 and is headquartered in Boston, MA.

The stock recently broke out of the downward channel after it hit support at $80. This caught my attention as I was looking for a reversal.

Source: https://www.tradingview.com/chart/qjA4bqTX/

Wayfair Inc. (W) Financial overview

A very interesting situation with company financials, as seen below. Revenue for the company shows good, stable growth quarter after quarter, but quarterly EPS keeps declining. This is not normal for a company and is a very strange if not dangerous sign, that I started to dig deeper below. I was looking for the reasons for the decline in profit (EPS) and whether that opposite movement will eventually end.

Source: https://www.zacks.com/stock/chart/W/fundamental/eps-diluted-quarterly

Looking at the company’s financials, we do see that revenue was growing year after year. In fact, revenue grew 5 times from 2014 to 2018. The next point is Gross Income. Gross Profit Margin remains more or less the same for the past few years, so Gross Income grows as much in % as revenue. This is not bad and is usually expected. However, some companies manage to increase Gross Profit Margin as they grow sales due to volume discounts. It would be nice to see a little bit increase in Gross Profit Margin.

Next, why do they lose money? Well, it is all about the nature of the business. Yes, the cost of goods follows sales as that is the price they pay for the goods to suppliers. But then you have to store all that furniture, then deliver it to customers who buy. And the furniture is not easy or cheap to store and transport. It also requires extra delivery of people and trucks to deliver it to customers. With that, their SG&A costs keep increasing together with the increase in sales.

And unfortunately, why they try hard to grow sales by going international, this will not solve much as with every new country added to the portfolio you need to have storage facilities there and think of how to deliver those big furniture items to customers.

Source: https://www.marketwatch.com/investing/stock/w/financials

The company does know about this issue, and they say their long-term plan is to reduce SG&A costs down which will increase profit. Unfortunately, they have been reusing those targets in presentations for the past few years, but there is no clear plan or timeline of when and how they will get to that target. This is troubling.

Source: https://s24.q4cdn.com/589059658/files/doc_financials/quaterly/2019/q3/Q3'19-Wayfair-Investor-Presentation.pdf

With a lack of profit for the past few years, there is another troubling fact about the company: is that it is accumulating debt and issuing stock to pay it off, thus diluting shareholder value. As seen below, while it is doing fine with short-term liquidity, its long-term is quite high. Given it is not likely going to generate profit for the next several years, it will continue the trajectory of accumulating debt or issuing more stocks.

Source: https://www.marketwatch.com/investing/stock/w/financials

Source: https://www.marketwatch.com/investing/stock/w/profile

Wayfair Inc. (W) Key financial ratings/Stock Value

As seen below, the estimates for the short and long term do not forecast profit for the company for at least 4 more years despite growing revenue. With that, stock valuation is difficult as planning for a future value that far is risky and not reliable. In such cases may investors turn to price-to-sales ratio. W stock ratio is 1.19, whereas a ratio of 1 to 2 is considered good. A ratio under 1 is considered excellent. So, W stock is on the lower edge of the ‘good’ area, almost ‘excellent’ likely causing some interest among investors.

For me, this ratio, combined with earnings forecasts, is not good enough. I prefer to be able to have some sight of earnings in the future or like with breakthrough companies, see the sales level when the company is likely to turn profitable. With this stock, it is not even possible to tell when and at what levels of sales it will become profitable.

Source: https://simplywall.st/stocks/us/retail/nyse-w/wayfair?utm_medium=finance_user&utm_campaign=cta&utm_source=yahoo&blueprint=1020918

Source: https://www.zacks.com/stock/chart/W/eps

Source: https://www.marketwatch.com/investing/stock/w/analystestimates

Wayfair Inc. (W) - Ratings by analysts

There are 34 ratings by analysts for the stock. 16 think it is hold, 4 think it is a sell, and 14 think it is a buy. The ratings, in combination, make it an ‘Overweight’ or ‘Buy’ rating. The average target price for W stock is around $107, which is just $4 above the current price.

Zack gives the stock a ‘Sell’ rating, which better resonates with me.

Source: https://www.marketwatch.com/investing/stock/w/analystestimates

Source: https://www.zacks.com/stock/quote/W?q=W

Lastly, simplywall.com gives the stock a bad rating due to performance in their ‘snowflake analysis.’

Source: https://simplywall.st/stocks/us/retail/nyse-w/wayfair?utm_medium=finance_user&utm_campaign=cta&utm_source=yahoo&blueprint=1020918

Wayfair Inc. (W) Buzz (StockTwits, Investment board)

The number of tweets on stocktwits.com is quite healthy for the company of this size. However, the crowd on StockTwits is quite bearish about the stock.

Source: https://stocktwits.com/symbol/W

Wayfair Inc. (W) Risks

· The main risk is not seeing a profit for the next few years.

· Growing liabilities

· Keeps diluting shareholder value issuing stock

Wayfair Inc. (W) Overall assessment and summary

Overall, I think this stock is not a good choice for investment unless you would like to short it. Unless the company does something very radical, like partnering with Amazon to take over all storage and delivery it seems it will continue to struggle to cut costs and get to profitability.

My rating: Sell

Have an idea about Wayfair Inc (W)? You have a different opinion about this stock? I made an error in assumptions? You have additional information to share? Please leave your comments below.


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