Wayfair W has skyrocketed during the coronavirus economy, with W shares up a mind blowing 650% since March 20 to crush fellow stay-at-home star Zoom’s ZM 85%. And investors might want to consider buying the e-commerce giant as a longer-term play because its growth, outlook, and other fundamentals remain strong.
Wayfair is an online-only retailer—aside from a few brick-and-mortar and pop-up locations—that sells furniture, home décor, appliances and more. This includes everything from sofas and beds to refrigerators and microwaves and nearly anything else one might want for their house or apartment, such as wall art.
Wayfair went public in 2014 and its family of websites includes its namesake, as well as Joss & Main, AllModern, Birch Lane, and Perigold. Wayfair as a whole competes against the likes of Target TGT and RH RH and it has proven it can grow within this niche even as Amazon AMZN expands its reach.
W’s revenue surged from $1.3 billion in fiscal 2014 all the way to $9.1 billion in 2019, with sales up 35% or higher in the trailing three years—after they jumped 50% in 2016 and 70% in 2015. This expansion clearly came well before the coronavirus pandemic forced people to stay at home and “non-essential” stores to close.
Last quarter, Wayfair’s revenue jumped up 20% for the three-month period ended on March 31, while its active customers popped 29% to 21.1 million. The Boston-based company also posted a smaller-than-projected adjusted Q1 loss. And Wayfair’s management thinks the pandemic might help accelerate e-commerce growth.
“The broader market disruption has highlighted the many differentiated advantages we have built as the e-commerce leader in Home over the last two decades,” CEO Niraj Shah said in prepared remarks. “Millions of new shoppers have discovered Wayfair while they shelter in place at home, and we are seeing strong acceleration in new and repeat customer orders across almost all classes of goods and across all regions.”
Wayfair stock has soared from under $30 a share to its new highs of over $200 per share in the last three months. Despite the rally, W is trading at 1.4X forward 12-month Zacks sales estimates, which marks a discount against the S&P 500’s 3.5X and its industry’s 2.2X. Better still, Wayfair trades below its own two-year highs of 1.7X and Home Depot’s HD 2.3X.
Looking ahead, our Zacks estimates call for Wayfair’s Q2 sales to soar 66% to mark its strongest expansion since Q2 of 2016. Plus, W is expected to swing from an adjusted quarterly loss of -$1.35 in the year-ago period to +$0.85 a share.
The company’s fiscal 2020 revenue is then projected to jump another 37% to hit $12.5 billion. Wayfair is also expected to see its full-year losses shrink in 2020 and 2021, and its FY20 and FY21 adjusted earnings estimates have trended heavily in the right direction.
Wayfair is poised to grow at a time when many retailers are set to take a huge hit, which might make it an attractive near-term play even if it pulls back a bit. And Wayfair’s positive earnings revisions help it earn a Zacks Rank #1 (Strong Buy) right now.
Investors with a longer-term horizon should note that Wayfair continues to spend heavily on its own growth. And W stock does still carry a high level of short interest, which means investors—normally large ones—are betting against the stock.
That said, some investors might want to buy Wayfair as a bet on the future of shopping. It’s also worth remembering that e-commerce is still in its early days, accounting for just 11.8% of total U.S. retail sales in the first quarter, according to U.S. Department of Commerce data.
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This young company’s gigantic growth was hidden by low-volume trading, then cut short by the coronavirus. But its digital products stand out in a region where the internet economy has tripled since 2015 and looks to triple again by 2025.
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Target Corporation (TGT) : Free Stock Analysis Report
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