Wayfair Inc. W shares have skyrocketed 170% since the market’s March 23 lows. Investors have clearly turned to the home furnishing-focused e-commerce company for its ability to grow during the coronavirus-induced stay-at-home push.
The question now is should investors buy Wayfair stock even though it’s already up roughly 95% in 2020?
Wayfair’s Pandemic Pitch
Wayfair is a home-focused, online-only retail powerhouse—aside from a few brick-and-mortar and pop-up locations. The firm boasts that it sells more than 18 million items across home furnishings, décor, home improvement, houseware, and more. This includes everything from sofas and beds to refrigerators and microwaves and nearly anything else, such as wall art.
The company’s 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, RH RH, and countless other home-focused retailers.
Wayfair on May 5 reported its Q1 fiscal 2020 financial results, with total first quarter revenue up 20% from the year-ago period to $2.33 billion. W also posted a smaller-than-projected adjusted Q1 loss.
The Boston-based company also saw the number of active customers in its direct retail business reached 21.1 million as of the end of March, which marked a 29% jump. “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.”
As we mentioned at the outset, W stock has surged roughly 175% since the market’s March 23 lows. And Wayfair shares have soared even more since March 19, up from under $24 a share all the way up to Thursday’s closing price at the end of regular trading of $176.89 a share.
Clearly, this current pace seems unsustainable, but these are unprecedented times, as Wall Street scoops up stocks from Amazon AMZN to Netflix NFLX that fit the current stay-at-home model. And even if things return to something close to normal, many people might decide to continue to shop online.
Despite its climb to new highs, Wayfair is trading at 1.4X forward 12-months sales estimates. This marks a discount compared to its industry’s 1.9X average and its own five-year highs of 2.1X, as well as eBay’s EBAY 2.8X, and Amazon’s 3.2X.
Moving on, our Zacks estimates call Wayfair’s second quarter revenue to climb 32% to hit $3.08 billion. This would mark solid growth for a retailer during these uncertain times and easily top Q1’s 20% growth.
Peeking ahead, W’s fiscal 2020 revenue is projected to climb 22%, with 2021 expected to jump another 24.3% higher to touch $13.81 billion. Investors should note that both of these figures would mark its slowest top-line growth since it went public in 2014—sales climbed 35% in 2019 and 44% in 2020.
Wayfair’s bottom-line looks far less appealing, as it continues to spend heavily to achieve its growth. W’s adjusted loss per share is projected to get worse in Q2 FY20 at -$1.50 a share. Meanwhile, the company is expected to report a slightly larger adjusted full-year loss of -$8.45 a share this year, with FY21 set to shrink to -$6.92.
The nearby chart shows that Wayfair has also seen its earnings outlook improve during these difficult and uncertain times, which is no easy task. This positivity helps W stock earn a Zacks Rank #1 (Strong Buy) at the moment, alongside its “A” grade for Momentum in our Style Scores system.
Wayfair’s e-commerce business is poised to grow at a time when many retailers are set to take a huge hit, and Wall Street has been willing to pay for its story over the last six-plus weeks. W is also part of an Internet – Commerce space that rests in the top 19% of our more than 250 Zacks industries.
In the end, investors might want to think about buying Wayfair stock even near its new highs as a safe-haven style investment for the coronavirus. That said, W does carry a high level of short interest, which means investors—normally large ones—are betting against the stock. This can also create more volatility. Therefore, some investors might want to wait for a pullback and others might want to stay on the sidelines altogether.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Target Corporation (TGT) : Free Stock Analysis Report
Amazoncom Inc (AMZN) : Free Stock Analysis Report
eBay Inc (EBAY) : Free Stock Analysis Report
Netflix Inc (NFLX) : Free Stock Analysis Report
RH (RH) : Free Stock Analysis Report
Wayfair Inc (W) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research