Please ensure Javascript is enabled for purposes of website accessibility

Is the Growth Boom Over at Wayfair?

By Rick Munarriz – Sep 4, 2020 at 9:25AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The online furniture retailer was a 16-bagger after bottoming out in mid-March, but one analyst thinks that business is starting to slow down.

At least one Wall Street pro is cooling his enthusiasm for one of this year's post-pandemic sell-off winners. Justin Post at Bank of America Securities is downgrading shares of Wayfair (W -8.74%) on Friday, arguing that his firm's credit and debit card data suggests that consumer spending for online home furnishings decelerated in August.

We're still buying stuff for our homes. The shelter-in-place phase of the coronavirus crisis has made us more critical of our furnishings. But with more brick-and-mortar furniture stores starting to reopen this summer (and folks clamoring to get out of the house even if it's just to shop for a new sofa), Wayfair is no longer competing with just its online rivals. 

A smartphone using Wayfair's augmented reality app feature to see how a piece would look in their home.

Augmented reality is one way that Wayfair stands out among online furniture retailers. Image source: Wayfair.

This piece is also a recliner 

Wayfair was a bottle rocket since most growth stocks bottomed out in mid-March following the initial pandemic sell-off. It was a wealth-altering 16-bagger from its springtime low of $21.70 to the all-time high of nearly $350 it hit two weeks ago. 

The tech-savvy marketplace for furniture and other home goods was already gaining market share before the coronavirus pandemic catapulted it into the spotlight. Net revenue rose nearly 35% last year. The pandemic initially slowed things down at Wayfair with top-line growth decelerating to 20% for the first quarter of this year. But when it became clear that we were going to be spending a lot more time at home with limited options to spruce up our digs, Wayfair turned on the afterburner. 

Net revenue skyrocketed 84% in the second quarter, as the $4.3 billion it generated in sales was comfortably ahead of the $4.06 billion that Wall Street was expecting. It wasn't a one-quarter fluke, as Wayfair pointed out in its early August earnings report that net revenue was up 70% so far in the current quarter. Profitability has always been a challenge, but this time it came through with an adjusted profit of $3.13 a share, more than three times what analysts were targeting for the quarter. 

Wayfair's popularity is booming. Its active customer base has surged 46% over the past year. A lot of the folks who turned to Wayfair when local showrooms were shuttered during the pandemic are going to stick with the online darling. With life starting to gradually return to normal, however, it's also easy to see why updating a dining room set is no longer a high priority. 

Post at Bank of America Securities is still high on Wayfair's ability to expand margins and master the tricky art of fulfillment during the pandemic. It's also worth noting that he's sticking to his earlier price target of $330, potentially making this a valuation call after the stock's stellar ascent beyond just the gradual shift back to old-school shopping. Wayfair continues to be one of the market's top growth stocks, and it will remain that way until we see a sharp reversal of its recent sales and stock gains.

Rick Munarriz 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Wayfair Inc. Stock Quote
Wayfair Inc.
W
$34.56 (-8.74%) $-3.31

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
342%
 
S&P 500 Returns
107%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.