Wayfair's (W 7.63%) share price has tumbled 83% in a little over a year. After soaring to an all-time high of $369 in Jan. 2021 on the back of accelerating growth during the pandemic, the stock currently sits at about $64.
Wall Street is worried about the company's deteriorating growth in recent months. In the first quarter, it reported a revenue decline of 14% year over year. But I wouldn't want to bet against the long-term growth of e-commerce, especially for the leading online home goods brand.
Wayfair's 2021 revenue amounted to just under $14 billion, but the value of the home goods market is estimated to reach $1.2 trillion by 2030. The upside could be huge for a stock this cheap. Shares currently trade at a price-to-sales (P/S) ratio of less than 0.5, which is even lower than slow-growing Walmart's multiple of 0.6.
Data by YCharts.
Seven years ago, Wayfair was just reaching the $2 billion annual sales milestone -- it's unlikely to stop at $14 billion. One important reason Wayfair will return to growth can be explained by how the company is helping over 23,000 suppliers connect with customers in this challenging economic environment.
Wayfair's high-performing delivery network
In the last earnings report, CEO Niraj Shah mentioned the volatility in the current economic environment reinforces Wayfair's advantage, which is the value it offers suppliers and customers. Shah reported the company is seeing "strong interest" in selling on Wayfair, and he credited this to the value it offers suppliers through its CastleGate fulfillment centers.
Wayfair launched CastleGate in 2016, and the company has been investing heavily in this logistics network ever since. Over the last four quarters, the company spent $320 million on capital expenditures, more than doubling in the last five years. The company briefly reported a healthy profit during the pandemic, but that turned into a loss of $468 million over the last year.
Data by YCharts.
CastleGate has gotten more sophisticated the more the company builds it out. Wayfair now offers suppliers a complete end-to-end logistics solution, shipping items from the manufacturing plant in Asia to the customer's doorstep. This is turning into a competitive advantage for Wayfair in the home goods industry, since its infrastructure is specifically designed to process and handle large furniture. This helps distinguish its operation from larger e-commerce rivals like Amazon. Fast, efficient delivery is crucial in reducing the risk of damage and costs for suppliers, and Wayfair is benefiting.
The number of suppliers selling on Wayfair has nearly doubled since 2019. More inventory coming to Wayfair from these suppliers should widen merchandise selection and push the business toward growth.
Image source: Getty Images.
Low supply levels contributed to decelerating revenue growth last year, but improving supply levels will benefit the business in the near term, as Shah explained in May.
It is important to note that our business model excels when supply meets or exceeds demand as it does most of the time. However, 2021 represented the opposite. This resulted in poor availability, a significant degradation of delivery speed and cost pressures.
This is why Shah expects revenue growth to progressively accelerate through the end of 2022.
Meanwhile, investors' growth expectations are incredibly low. This sets up a good buying opportunity: Wayfair's share price is set to rise sharply once the company has positive news to report.
While it could take years for the stock to return to its previous all-time high, investors are not being asked to pay a premium for growth anymore. All it would take is a few better-than-expected quarters to send this top e-commerce stock back to the $100 level, or a price-to-sales ratio of about 1.0.
