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Why Wayfair Stock Shed 25% in October

By Demitri Kalogeropoulos – Nov 6, 2018 at 12:08PM

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Investors weren't happy with the e-commerce upstart's latest cost trends.

What happened

E-commerce specialist Wayfair (W 4.79%) lagged the market last month by falling 25% compared to a 7% slump in the S&P 500, according to data provided by S&P Global Market Intelligence.

^SPX Chart

^SPX data by YCharts.

The decline occurred during a brutal period for most stocks, especially technology companies that had previously enjoyed sharp rallies. Wayfair had been up nearly 90%, in fact, but October's drop pushed those returns closer to 30%.

So what

Beyond the generally negative market sentiment, investors also sold the stock lower in anticipation of tough third-quarter earnings results. The concerns turned out to be well founded, since Wayfair on Nov. 1 revealed that its losses roughly doubled as costs spiked. Sales growth remained healthy, on the other hand, and exceeded management's guidance for the third straight quarter.

A man enters credit card information in a laptop.

Image source: Getty Images.

Now what

Investors can expect costs to remain elevated as management prioritizes investing in the business. They are ramping up hiring and spending on infrastructure and advertising right now, for example, because they see an attractive opportunity to secure high returns over the long term. Meanwhile, Wayfair issued a conservative forecast for the holiday season as executives prepare to match prices with traditional retailers who might resort to aggressive discounting over the next few weeks.  

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Wayfair. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Wayfair Inc. Stock Quote
Wayfair Inc.
$34.11 (4.79%) $1.56

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