Wayfair (NYSE: W
) is one of those companies that can safely call the COVID pandemic a blessing in disguise. Even as an already well known e-commerce company
, their shares had been trending down since 2019 before taking a further 80% tumble this time last year. But within a few weeks, a COVID-inspired rally had started in them that wouldn’t stop until it had topped 1,500%. They were one of the best stocks to own in 2020, but for all that though their shares are looking slow and sluggish so far this year.
As talk continues to build around an ongoing rotation from growth to value, more and more stocks with price-to-earnings (PE) ratios of triple digits, or more, are coming under scrutiny. Wayfair is one such stock, boasting a rich PE ratio of 155. The thinking is that these growth names were acceptable places to park the cheap cash that was available all through 2020, but with bond yields taking a surprise jump last week, it’s time to restructure portfolios.
The fact that Wayfair’s shares are effectively flat since August speaks volumes; a lackluster six months that’s also been mirrored in Amazon’s (NASDAQ: AMZN) stock. Tesla stock (NASDAQ: TSLA), perhaps the poster boy of growth names in 2020, is in the middle of a 30% pullback from its January all-time highs. We’re not saying that the party is over for tech, but there’s definitely some head-scratching going on.
A Rare Miss
On Thursday morning of last week, Wayfair gave Wall Street some more to chew on by way of their Q4 earnings report. For the first time in more than 3 years they reported a miss on the topline revenue. A gap of $100 million on a total figure of $3.7 billion isn’t all that serious but still. The bulls will take solace from the fact that the number was still up 45% on the year, with EPS comfortably beating analyst expectations. The number of active customers was up more than 53% year on year also, a nice jump that helped soothe the miss.
Wayfair CEO Niraj Shah spoke confidently to the coming quarters when he said “as we look beyond the pandemic period, we are confident that our long-term orientation and years of investments should translate to compounding share gains and increasing profitability in a rapidly growing e-commerce market”.
Shares dipped initially in Thursday’s session but went into the weekend up more than 12% from those lows. A subsequent conference call outlined management's projections for 50% revenue growth for Q1, far higher than the consensus estimate for 43%. This seems to have gone a long way to mitigating the rare revenue miss.
The report and rough guidance were promising enough for Morgan Stanley to ease their bear case on Wayfair shares, moving them off Underweight and up to an Equal Weight rating. In a note to clients analyst Simeon Gutman kept his $270 price target static while noting that the long-term profitability outlook "looks better". Gutman also has more confidence in the company’s long-term margin profile because Wayfair "is a structurally stronger business post-COVID". Interestingly he stopped short of raising them to a full Overweight, or Buy, rating.
For those of us sizing up Wayfair, it’s probably worth keeping that in mind and being patient for the moment. There are bigger forces at play right now and we could be in for some short-term volatility as the NASDAQ index trades under its 50 day moving average for the first time since November. There’s solid support around the $230 mark to use as an entry if shares take a dip.
Otherwise, look for a breakout north of $320 to confirm a fresh rally is afoot. All the signs point to Wayfair, with its tight grip on the online home furniture market, remaining a huge name in the future. But both Wayfair shares, and the broader market, look like they have a bit of thinking to do in the meantime.
Featured Article: Quiet Period Expirations7 Stocks to Buy For the Gig Economy
Before the global pandemic, it was referred to as a side hustle—a way for some individuals to make a little extra money. However, as the pandemic has changed the nature of how we work, and as consumers how we spend, the gig economy has become an essential way of life for many workers.
There is much that’s not known about the long-term effects of the pandemic. But if there’s one lesson we learn from history, it’s that there will be ripple effects. We believe that society will get back to something resembling normal. However, what that normal looks like may be different.
Americans were becoming less social since before the pandemic. Now consumers have begun to realize there truly is no reason to leave their house to shop for anything. And while many crave physical connection during these times, there will be many that have changed their purchasing habits for good.
Other elements of the gig economy, such as ride-hailing and home rentals, were devastated due to the pandemic. Those businesses are likely to come back.
And that’s why companies that have created the gig economy aren’t going away anytime soon. In this special report, we’ll highlight several stocks that investors should consider as the gig economy moves forward.
View the "7 Stocks to Buy For the Gig Economy"
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