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Wayfair (NYSE:W) Stock: Up 58% YTD; More Upside Ahead?
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Wayfair (NYSE:W) Stock: Up 58% YTD; More Upside Ahead?

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Wayfair stock has gained more than 58% year-to-date, triggered by several catalysts. However, despite the rally, there is room for more growth, making me bullish on the stock at current levels.

Wayfair (NYSE:W) stock is up more than 58% year-to-date, thanks to a variety of reasons, including the possible bankruptcy of Bed Bath & Beyond (NASDAQ:BBBY). Further boosting the stock are several upgrades from many analysts across the Wall Street community recently, driven by the company’s cost-cutting plans. The big question now is whether the stock is still worth buying after almost doubling to over $51 (from its 52-week low of $28.11 seen in 2022).

While the recent share price gain is huge, the stock is still much below its pre-pandemic high of $173. Given the catalysts listed below, as well as the cheap valuation, the stock has upside potential, making me bullish.

Based in the U.S., Wayfair is a global e-commerce company that sells furniture and home decor goods online, and the company is anticipated to release its fourth-quarter results on February 23 before the market opens. Wayfair is expected to report a loss per share of $1.62 during Q4, wider than the previous year’s adjusted loss of $0.92 per share. Let’s take a deeper look at the stock to see what makes it attractive.

Wayfair is Downsizing, Inching Toward Profitability

COVID-19 lockdowns boosted the company’s sales and profitability, taking Wayfair stock to its all-time high at $369 in early 2021. Like most retailers, the company expanded operations and hired more employees to meet the rising demand. However, the stock tanked after the pandemic tailwinds disappeared and brick-and-mortar stores reopened.

Demand for home goods further slumped as rising interest rates and high inflation tightened consumers’ spending appetites. As a result, operating expenses rose while revenue growth slowed down, leading to compressed margins. For instance, during the first nine months of 2022, the company reported a 12.5% decline in revenues.

However, the company is currently in the middle of downsizing its cost structure. On January 20, Wayfair announced its annual cost savings target of over $1.4 billion as it plans to lay off about 1,750 employees — 10% of its workforce. This is on top of the 5% workforce reduction announced in August last year.

Management stated that its cost-efficiency plan will accelerate its goal to achieve break-even adjusted EBITDA. It now expects to accomplish positive EBITDA earlier than expected in 2023. I believe cost savings will lead to higher margins and improved cash flows, as well as improved debt coverage for the company.

Market Share Gains from Possible Bed Bath & Beyond Bankruptcy

Wayfair is likely to be a direct beneficiary of the imminent bankruptcy of Bed Bath & Beyond (NASDAQ:BBBY). As of November 30, 2022, Bed Bath and Beyond operated 949 stores, including 762 Bed Bath & Beyond stores and 137 Baby stores. The struggling company has already closed hundreds of stores.

Another positive for W stock is that the Home Furnishings category sales returned to month-over-month growth in January, as detailed by the U.S. Census Bureau in its Monthly Retail Sales report. In January 2023, furniture & home furniture store sales were estimated to be around $12.25 billion, 4.3% higher than the $11.74 billion estimated in December 2022.

This signals a positive sales growth trend, boding well for stocks like Wayfair. Further, the easing of supply-chain challenges should also aid in revenue growth.

Is Wayfair Stock a Buy, According to Analysts?

Turning to Wall Street, analysts are cautiously optimistic about Wayfair stock and have a Moderate Buy consensus rating based on eight Buys, 12 Holds, and two Sells. Wayfair stock’s average price forecast of $54.06 implies 4.4% upside potential.

In terms of its valuation, too, Wayfair looks extremely cheap. Currently, it’s trading at an attractive EV/sales ratio of 0.7x compared to much higher multiples of its peer group. For example, the online marketplace Etsy, Inc. (NASDAQ:ETSY) is trading at a much higher EV/sales ratio of 7.1x.

This is an attractive discount and likely presents a good buying opportunity given the strong growth potential from demand recovery and market share gains.

Conclusion: Consider Buying Wayfair Stock

The home furnishings industry growth is directly related to macro sentiment and should rebound once recessionary fears subside. How soon Wayfair will return to reasonable revenue growth and report profitability remains to be seen. Nonetheless, its restructuring initiatives are steps in the right direction.

The resumption of demand growth should lead to higher revenues and income. Cost-cutting efforts will further aid profitability. If profitability metrics turn green in 2023, as targeted by the company, it could lead to restored investor confidence as well as a share price rally. I will, therefore, buy the stock at its current levels.

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