From a narrow viewpoint, the novel coronavirus was just about the worst thing that could happen to Wayfair (NYSE:W). As the Covid-19 outbreak spread throughout China and later reaching the U.S., Wayfair stock began to print red ink. Right before February’s midway marker, shares entered freefall. But in the second half of March the narrative completely changed.
What caused Wall Street to get W shares so wrong? As the pandemic worsened in the U.S., most states eventually issued stay-at-home orders. Logically, this imposed a hard stop on the world’s greatest economy. Further, it led to the disruption in the labor market, with millions finding themselves out of work.
However, this was an opportunity for companies which had strong online businesses. Yes, companies like Netflix (NASDAQ:NFLX) and Zoom Video Communications (NASDAQ:ZM) benefited handsomely from shelter-in-place orders. But Wayfair stock skyrocketed as well, buoyed by strong consumer sentiment.
It turns out that the coronavirus didn’t kill discretionary spending. Instead, the pandemic only shifted the revenue stream from one platform (i.e. brick and mortars) to another. Thus, the fear mongering was really unnecessary, and worse yet, convinced investors to ignore the fundamental strengths of our economy.
But even if you made that mistake, I have good news: you can still trust Wayfair stock to deliver the goods. Here are three reasons why.
Wayfair Stock Is a Counter-Intuitive Play on Real Estate
One of the peculiar details about W is that shares are again at a counter-intuitive junction. Before, investors didn’t believe that consumer sentiment could be so strong during forced quarantines. Today, many are doubtful that demand for real estate can return to pre-coronavirus levels.
Not only am I confident, the data confirms that buyers, driven by pent-up demand (and possibly some frustration) are eagerly inking deals. According to the Miami Herald, while sales slowed down during the first two weeks of April in the Miami residential real estate market, they picked up in the first two weeks of May.
Interestingly, buyers are adjusting to the new normal rather than letting the new normal discourage them away from the market altogether. According to Ron Shuffield, president and chief executive officer of Berkshire Hathaway HomeServices EWM Realty:
We are seeing some patterns evolving…For example, in the minds of some buyers, there seems to be an increase in today’s consideration of a single-family home lifestyle over that of a condominium. The fact that homeowner associations are restricting access to condo buildings for move-in and move-out, as well as the real estate broker’s showing of units for sale, has definitely changed the balance of condo sales versus single-family home sales.
I can’t emphasize this enough. The pandemic isn’t destroying sentiment but merely changing the platform. And while I’m focusing here on Miami, you can reasonably expect a similar dynamic across the U.S. as states gradually relax their restrictions.
With so much demand available, you’d do well to at least consider some exposure to Wayfair stock.
Unemployment Picture Isn’t That Bad
Despite the positives, many investors are still psyching themselves out regarding the negative economic data. Most prominently, the unemployment numbers don’t look at all inviting for Wayfair stock.
In April, the Bureau of Labor Statistics reported that 20.5 million people lost their jobs. Since the crisis turned serious two months ago, more than 36 million workers filed for unemployment benefits. No matter how you look at it, these are staggering, depression-level figures.
So, why am I not freaking out? Although the mainstream media loves harping on the term “unprecedented” to describe our present troubles, it’s somewhat disingenuous. This crisis was not caused by a fundamental weakness in our economy but rather a pandemic.
As Miami’s real estate data shows, if you eliminate the pandemic, you’ll eliminate the crisis.
Of course, it’s not quite that simple. But what I’m trying to emphasize is that the driver for this calamity is not related to the economy. The demand is there. We just need a way to actualize it.
And as that demand comes back for real estate across the country, we should expect higher prices for Wayfair stock. During the quarantines, the underlying company received a tremendous marketing boost that’s now etched into buyers’ memories.
People Will Come to Their Senses
A counterargument for my bullishness toward Wayfair stock is the sudden migration of Americans away from big cities and into the suburbs or even rural areas. If the latter trend accelerates, that might be problematic for W. Rural areas are less likely to shut down and therefore would have brick-and-mortar furniture stores open for business.
But I’m not sure how much credence I would give this thesis. Yes, people would be safer in the great outdoors for a host of reasons. However, the relevant, well-paying jobs are still in the big cities. Furthermore, there’s no way that coastal regions in Washington, California and other states will go out of style. They are simply too important for our economic machinery.
Finally, the migration is likely a case of “do as I say, not as I do.” People love talking a big game. But when push comes to shove, they more or less revert to what they know. For example, consider the massive amount of out-of-state traffic that hit certain states that reopened their economies before others.
It’s really simple – big cities mean big business, something that most Americans can’t do without. Because of that reality, you can count on Wayfair stock for the long haul.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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