Retailer Wayfair (W) has made its mark in the e-commerce industry as a top online retailer of home goods and furniture. The company capitalized on the shift to online shopping to establish an edge in the home furnishings market.
It has grown significantly in recent years, particularly during the COVID-19 pandemic, when consumers shifted to online shopping for home furnishings. Its growing customer base has kept its revenue stable. However, the company has struggled with achieving profitability.
Wayfair stock is up 9.8% year to date, compared to an 11% gain for the S&P 500 Index ($SPX). The stock increased by 88% in 2023, and Wall Street expects it to repeat the feat in 2024. Let's see if Wayfair is a good stock to buy now.
Wayfair’s Customer Base Is Growing
Wayfair's financial performance has been marked by impressive revenue growth, particularly during the COVID-19 pandemic. In 2020, revenue increased 54% year on year to $14 billion.
Despite the post-pandemic slowdown, Wayfair has sustained a consistent revenue stream, demonstrating resilience and adaptability. In the most recent first quarter of 2024, net revenue fell 1.6% year on year to $2.7 billion. Yet, both revenue and earnings exceeded consensus expectations.
Wayfair boasts a strong and growing customer base, indicating robust market penetration. The number of active customers increased by 2.8% during the quarter to 22.3 million. Furthermore, 80.5% of total orders, or 7.7 million orders, came from repeat customers, indicating that the company is retaining its customers, which could result in recurring revenues. The company has struggled with profitability, incurring net losses while continuing to invest heavily in marketing, logistics, and technology to fuel future growth.
While the company reported a loss of $0.32 per share, it was significantly narrower than $1.13 in the year-ago quarter. Furthermore, Q1 marked Wayfair's fourth consecutive quarter of operational profitability. Adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) stood at $75 million, better than negative $14 million in the previous year's quarter.
Among the retailer's many strategies for 2024, one is to offer a loyalty program to its members in the second half of the year. The company will also open its first branded store on May 23.
For the second quarter, management expects revenue to be in line with the year-ago quarter or “slightly positive.” Gross margin could range between 30% and 31%. The company believes that the cost-pricing strategies implemented over the last two years will generate positive free cash flow in 2024.
Analysts predict the company will post a profit of $1.14 in 2024, with earnings rising by 83% to $2.08 in 2025. Revenue could increase by 1.1% in 2024 and 6.2% in 2025.
Since it is not profitable, we will look at its price-to-sales ratio for valuation purposes. Wayfair stock trades at 0.81 times forward 2024 estimated sales, which is cheap for a growth stock.
What Do Analysts Say About Wayfair Stock?
This month, Citi analyst Ygal Arounian reiterated his “buy” rating on the stock with a target price of $85. The analyst is impressed by Wayfair's diverse product portfolio, competitive pricing, and customer enhancement strategies, which are helping the company gain market share.
What’s more, Arounian believes the company's strategic initiatives, such as a new brand campaign, will "lead to improved profits, cash flow, and balance sheet health for Wayfair."
Similarly, Truist Financial maintained the same bullish rating, setting a target price of $70 for the stock.
More recently, Argus upgraded Wayfair stock to a “buy” from “hold” on the strength of a surge in its total orders and active users, indicating future revenue growth potential. Argus believes Wayfair, with its diverse product offerings, is well-positioned to capitalize on the growing trend of online home furnishings purchases.
Furthermore, Argus has set a new target price of $83 for the stock, which implies an upside of 22.6%.
Wayfair has an overall “moderate buy” rating. Out of the 30 analysts following Wayfair stock, 16 have a “strong buy” recommendation, two say it’s a “moderate buy,” and 12 suggest it's a "hold.”
Based on analysts' average price target of $73.52, Wall Street expects potential upside of about 8.6% from current levels. The highest target price stands at $110, which indicates a gain of 62.6% over the next 12 months.
The Bottom Line on Wayfair Stock
Wayfair is expanding its customer base, but the ability to balance growth and profitability will be critical to its long-term success. Wall Street expects the company to report a profit this year, and the stock to rise by up to 60% based on the high target price estimate. Wayfair's strategic initiatives and growing customer base suggest that it is a good long-term growth stock. However, starting with a small investment in W as part of a diversified portfolio would be a good move right now.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
