Does Wayfair Stock Have a Future?

Wayfair (NYSE: W) shares have significantly outperformed the market this year, breathing new life into a stock that many investors left for dead. The 84% resurgence in stock price has caused many analysts to reevaluate their assumptions on the online home goods provider.

However, there are still serious obstacles standing in the way of W shares trading at over $300 again, as they did in early 2021. Recent sales increases still haven’t returned the company to the levels it achieved a few years ago, and the boost in revenue hasn’t made the company profitable either.

Even more concerning for potential investors is a recent report that Wayfair CCO Steve Oblak sold 2,000 shares of W. That news added fuel to speculation that the stock’s recent run-up has topped out, and Wayfair shares are due for a decline.

So does Wayfair stock have a future?

Why Did Wayfair Stock Go Up?

Despite the concerns around the company, there are good reasons why the stock has bounced back this year. Namely, Wayfair has outperformed analysts’ revenue expectations. The company consistently beat sales estimates by around 1% over the last year, but in the 2nd quarter of 2023, revenue exceeded expectations by 2.38%.

The demonstrable uptick in sales over the past 12 months led investors to believe that the company’s struggles were short-lived, perhaps even due to lingering pandemic issues, and now Wayfair is back in business.

Another reason that investors are bullish on Wayfair shares is because the company has made a commitment to lowering its costs, and it seems to be working. Wayfair now has positive free cash flow (FCF), jumping from a negative FCF of $244 million in the same quarter of 2022 to a positive FCF of $128 million in the 2nd quarter of 2023.

Orders have also increased to 10.3 million, a 3% jump over where the company was last year. The positive news about orders, cash flow, and revenue are the impetus for the recent rise in Wayfair’s stock price.

Is Wayfair a Good Stock To Buy Now?

While there has certainly been ample justification for the stock’s recent gains, there are still questions surrounding Wayfair that could bring those gains to a halt. The chief concern is that even though revenue exceeded estimates, it was still 3.4% lower than it was in the same quarter of 2022.

Even though orders increased, the number of active users actually went down in the quarter, dropping 7.6% to 21.8 million. And the average order size was down from $333 in 2022 to $307 last quarter. Putting that together, it looks like most of the revenue increases have been due to repeat customers, as opposed to an expanding customer base.

There’s another red flag for Wayfair, and that’s profitability. The company logged a net loss of $46 million in the second quarter, but that’s still far below the net loss of $378 million in the same quarter of 2022.

The combination of shrinking sales, decreasing users, and losses should be enough to cause investors to take a hard look before buying W now.

Is Wayfair a Good Long-Term Stock?

Even if there are concerns about the company’s current position, the stock could be poised to deliver long-term gains. Certainly, some investors will say that a stock that’s dropped 82% from $340, where it traded in 2020, should have plenty of potential for healthy gains from where it currently trades at around $60 per share.

But the main concern for long-term growth is Wayfair’s shrinking customer base. The company’s focus on home design-centered e-commerce is constantly under pressure from Amazon and Walmart.

With that in mind, the company recently announced a partnership with Lamb & Co. It was created by stars from the HGTV show Unsellable Houses who agreed to judge the annual Wayfair Professional Tastemaker Awards.

The awards go to innovators in the home-design space, and the partnership is designed to cement Wayfair’s brand as the go-to home store.

The company has also rolled out its Decorify platform, a virtual room design model that leverages AI to give consumers the ability to see how Wayfair products will fit their space before they order.

How High Could Wayfair Stock Go?

Because of the positive buzz and the recent sales increases, most analysts believe that W is a good investment at this price point. Out of 35 analysts who’ve offered ratings on the stock, 17 believe that W stock is a buy right now, with 1 analyst predicting the stock will outperform the market.

That most bullish forecast has W going up 85% over the next year to $114. The median forecast still sees the stock jumping 57.4% to $97 in the coming year.

16 analysts still have Wayfair shares at a hold, leaving only 2 who believe the stock is a sell at the current price level. The most bearish forecast has the stock underperforming the market over the next year, and dropping by almost 11% to $55.

Does Wayfair Stock Have A Future?

Wayfair is an online home goods retailer that’s been under heavy pressure over the past couple of years, but 2023 has been a banner year for the company. Consistently increasing sales, even if they aren’t to the level of years past, are a sign that Wayfair is securing its footing.

There are still concerns about the shrinking customer base, the lack of profitability, and that the average order size is dropping. With the recent jump in the stock’s price, many investors fear that the run may be over at this point.

Those concerns are valid, even if W is currently trading at a 0.7 price-to-sales ratio. While that’s a telltale sign that the stock could be undervalued, prospective Wayfair investors should still keep a close eye out for future developments.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.