Wayfair (W) soared during the pandemic as people spruced up their homes amid a nesting trend. But is Wayfair stock a buy as restrictions ease and folks spend elsewhere?
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Founded in May 2002,Wayfair offers more than 18 million items across home furnishings, decor, home improvement and other categories.
Aside from the main site, the platform includes five other website: Joss & Main, AllModern, Birch Lane, DwellStudio and Perigold.
Its Perigold catalog is the focus of the company's push into more high-end goods, which typically carry higher margins.
"There's just a tremendous runway because luxury in NorthAmerica is probably around about $60 billion or $70 billion of that $420 billion total addressable market," said CEO Niraj Shah at a Jefferies investor conference on June 22.
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Wayfair Stock Fundamental Analysis
Fueled by consumer spending on home furnishings during stay-at-home orders, Wayfair finished 2020 with an adjusted full-year profit of $5.04 a share, swinging from a 2019 loss of $8.03 a share. That marked its first full year of profitability.
The Boston-based company had $14.1 billion in 2020 sales, up 55%. The IBD Stock Checkuptool shows Wayfair boasts a three-year sales growth rate of 42%.
Wayfair reported mixed second-quarter results. It easily beat views on the bottom line, but revenue unexpectedly fell. Wayfair stock jumped.
It posted EPS of $1.89 a share on sales of $3.86 billion. Wall Street had expected Wayfair to report earnings of $1.16 a share on sales of $3.93 billion, according to FactSet. Revenue fell 10% from the year-ago period, after eight quarters in a row of double-digit gain
"While the current macro environment is dynamic, the home remains a high priority for our customers and longer term tailwinds to online category growth are firmly in place," Shah said in a statement.
The number of active customers reached 31.1 million as of June 30, 2021, an increase of 19.6% year over year. However, that's below Q1's 33.2 million active customers.
The average ordervalue grew to $278 for the second quarter of 2021, compared to $227 in the year-ago quarter.
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How Wayfair Harnesses Digital Tools
Whether it was desks and chairs for telecommuters, play sets for home-schooled children in need of a way to burn excess energy or seasonal decor to cheer up the holiday season, shoppers flocked to Wayfair.
The key to making shoppers feel comfortable buying furniture online is to make it easy to imagine what the product might look like in their homes. Wayfair uses 3D models and imagery to assist buyers.
Another challenge is delivering large, bulky items is a cost-effective way, quickly and without damaging them. And when things go wrong, to make the return experience as painless as possible.
The strategy appears to be working — and boosting Wayfair stock. Repeat customers placed 10.9 million orders in Q1, an increase of 58.9% year over year.
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Wayfair Stock Technical Analysis
Wayfair stock had its initial public offering in October 2014. W stock is trading below its 50-day and 200-day line, according toMarketSmith chart analysis. It hit a 52-week high intraday on Jan. 14 but has since retreated from that high.
Its relative strength line is trending upward again, following its Q2 earnings report. The RS line tracks a stock's performance vs. the S&P 500 index. Wayfair stock has an RS Rating of 12 out of a possible 99. The RS Rating tracks a stock's performance vs. all stocks over the last 12 months, with emphasis on the past three months.
Wayfair ranks No. 30 in IBD's Retail-Internet Group.
W stock has an EPS Rating of 32 and a Composite Rating of 17. About 74% of Wayfair stock is owned by institutional investors, with 1,159 funds owning shares as of June 2021.
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Big-Box Retailers, Amazon Pose Challenges
U.S. furniture and bedding sales reached an estimated $115 billion in 2020, according to Furniture Today estimates. The figure is based on data from the U.S. Department of Commerce's Bureau of Economic Analysis. Research firm IBISWorld says about $47 billion is from online sales.
The market for online home goods and furniture is highly competitive and fragmented, CFRA Research analyst Tuna Amobi. "While Wayfair is mainly focused on the mass market, it competes across all segments of the market, including furniture stores and specialty retailers, larger online retailers and marketplaces, big-box retailers, and department stores," he wrote in a recent note to clients.
Before the pandemic, Amazon (AMZN) and Wayfair captured the bulk of online furniture sales.Wayfair had 33.4% market share in 2019, the most recent data available, leapfrogging Amazon and its 29.7% share, industry tracker digitalcommerce360.com says. The next closest retailer is Walmart (WMT) with just 4.7%. Target (TGT) had 2.6%.
Other Wayfair competitors include Home Depot (HD) and Lowe's (LOW), especially for outdoor furniture.
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Can Wayfair Keep The Momentum Post Pandemic?
Management says that while early on people flocked to Wayfair out of necessity, many returned because they liked what they saw.
But as the pandemic restrictions ease and shoppers return to physical stores, Wayfair may have more competition.A lot will also depend on execution, too. As demand grows, Wayfair's fulfillment and delivery systems will be put to the test. This is key to one of its growing demographics: millennials.
The tech-savvy group, which comprises 80 million people from age 20 to 37, has a median household income of $75,000. Wayfair customers between the ages of 31 and 50 make up for about 45% of sales.
Wedbush's Basham is optimistic about the outlook for Wayfair stock. He said: "Macro drivers remain solid into 2021, with consumers spending more on the home, shifting from smaller to larger purchases and housing strength further driving sales; additional fiscal stimulus could also further boost sales."
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Is Wayfair Stock A Buy Now?
Wayfair has a relatively limited operating track record with a history of losses, along with significant competitions from larger rivals.
Wayfair stock has cooled off since rising quickly in the months following Covid shutdowns. Shares have been volatile for several months, during which they have bobbed above and below the 50-day moving average.
Bottom line: W stock is not a buy right now as shares are not in a buy zone yet.Still, with a growing customer base, over 10,000 suppliers and plans to branch out into related product categories such as plumbing, flooring and appliances, Wayfair is a stock to watch.
Investors can check out IBD Stock Lists and other IBD content to find dozens of thebest stocks to buy or watch.
Please follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
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