Wayfair Inc. (W - Get Rating) is one of the leading home shopping destinations in the world. The firm sells approximately 18 million products in the categories of home furnishings, décor, home improvement, and housewares. Under the Wayfair, Joss & Main, AllModern, Birch Lane, and Perigold brands, the company’s websites provide furniture, décor, housewares, and home improvement products.

However, the stock has declined 85.3% over the past year and 76.1% year-to-date to close yesterday’s trading session at $45.32. In addition, its shares are currently trading 85.7% below its 52-week high of 317.45, which it hit on August 13, 2021.

During the business’ first-quarter conference call, CEO Niraj Shah claimed that the company was witnessing signs of normalcy in customer behavior, with a percentage of their spending moving to physical retail.

Aside from the normalization of demand, macroeconomic headwinds such as rising prices and interest rates continue to impact W’s growth.

Here’s what could shape W’s performance in the near term:

Inadequate Financials

W’s revenue decreased 13.9% year-over-year to $2.99 billion for the first quarter ended March 31, 2022. Its loss from operations came in at $310 million, compared to an income from operations of $26 million from the prior-year quarter. 

The company reported a net loss of $319 million compared to a net income of $18 million. Its loss per share amounted to $3.04. In addition, its net cash used in operating activities came in at $226 million for the three months ended March 31, 2021.

Negative Profit Margins

W’s trailing-12-month gross profit margin of 27.9% is 23.5% lower than the industry average of 36.5%. Also, its trailing-12-month ROA, ROC, and net income margin are negative 11%, 11.8%, and 3.5%, respectively. Moreover, its trailing-12-month negative CAPEX/Sales multiple of 0.88% is 70.6% lower compared to its industry average of 3%.

POWR Ratings Reflect Bleak Outlook

W has an overall F rating, which equates to a Strong Sell in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. W has a D for Stability and Quality. The stock beta of 2.90 is consistent with the Stability grade. In addition, its poor profitability is in sync with the Quality grade.

Of the 46 stocks in the C-rated Specialty Retailers industry, W is ranked #43.

Beyond what I’ve stated above, you can view W ratings for Value, Growth, Momentum, and Sentiment here.

Bottom Line

Several industry-wide headwinds and rising inflationary pressure have weighed on the stock’s price performance. Analysts expect its EPS to decline at the rate of 42.8% per annum over the next five years.

In addition, the stock is currently trading below its 50-day and 200-day moving averages of $59.57 and $156.38, respectively, indicating a downtrend. So, we think the stock is best avoided now.

How Does Wayfair Inc. (W) Stack Up Against its Peers?

While W has an overall F rating, one might want to consider its industry peers, ODP Corp. (ODP - Get Rating) and TravelCenters of America LLC (TA - Get Rating), which have an overall A (Strong Buy).

W shares were trading at $45.32 per share on Monday afternoon, up $1.76 (+4.04%). Year-to-date, W has declined -76.14%, versus a -19.14% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

More Resources for the Stocks in this Article