The S&P 500 is down around 23% year to date, and that's an average of the 500 companies in the index. Many of its stocks are down around that much, although some are gaining, and some are posting massive declines. Online furniture retailer Wayfair (W -2.43%) is part of the latter category, with its shares plunging 82% so far this year after already beginning to lose steam last year. But there may be lots of growth in store for this struggling stock.

Too much growth too quickly

The furniture platform was growing fast before the pandemic started. Its business is completely online, which saves on the high costs of showrooms. Wayfair functions as a "dropship" platform for thousands of suppliers that partner with it to display their products on its website, and many of them use its robust logistics network to get the products to customers. Wayfair invested heavily in customer-oriented features, knowing that without a showroom, it needed to make the concept of buying furniture online attractive. It focuses on an easy shopping experience, with features that include augmented reality functions to envision how pieces look in rooms and image overlays with measurements to get a clear picture of space.

It was well positioned to soar during the pandemic when customers focused on home improvement and looked to digital retailers to make it happen. It posted excellent results during that time, with revenue increasing 55% year over year in 2020. It also became profitable as it scaled.

Yet like many companies that had to quickly scale up to meet surging demand, Wayfair is now dealing with the aftermath. Sales are falling as compared with the high increase in 2020, although they remain above pre-pandemic levels.

W Revenue (Quarterly) Chart

W Revenue (Quarterly) data by YCharts.

It has also posted a net loss for the past four quarters.

There are several reasons for the declines, and all of them are temporary as opposed to operational deficiencies. These include facing tough year-over-year comparisons, physical store reopenings, falling home sales, inflation, and supply chain problems. That's a lot for any company to handle, even those that are well run.

Does Wayfair have what it takes to survive through these challenges and get back to growth? Wall Street certainly thinks so. The average analyst target price is $65, or a nearly 100% increase from today's price. The high analyst target price is $150, or a 361% increase from today's price.

Let's take a deeper look.

A compelling model with long-term potential

Wayfair has been hit hard, but its story remains compelling. It operates in what it says will be a $1.2 trillion addressable market by 2030. Today it has a small fraction of that, with less than $13 billion in trailing-12-month revenue. Online penetration for the U.S. home category is still low at only 20% in 2021, which is actually a slight decrease from 2020 since customers pulled back online spending as stores opened up again.

The company operates several websites targeting various budgets, providing it with exposure to a wide economic demographic while being able to tailor a targeted experience for each subset. Wayfair is a founder-led company, and CEO Niraj Shah has shepherded it from a loose collection of niche websites to the dominant ones that remain today. Management's vision was to offer more choices to customers under one roof, which turned out to be a website. That allows the company to offer thousands of products to customers in any location, which wouldn't be possible in a physical showroom. In fact, Wayfair works with more than 23,000 suppliers to serve 24 million active customers. It also has 124 owned brands, providing it with some exclusivity.

This large selection is a cornerstone of Wayfair's business, and it sees that as an edge in a market in which customers are trading down in price due to inflation. The dropship model is also working in its favor, because, unlike many traditional retailers, the company isn't stuck with extra inventory.

Wall Street thinks its stock price will rise; should you buy?

The near term definitely looks tricky. The difficulties facing Wayfair won't end soon. 

However, the long-term outlook is strong. The company is continuing to invest in technology and supplier relationships to offer the selection and experience its customers have come to expect from it. This will weigh on the bottom line until sales pick up again. Ultimately, Wayfair has demonstrated that it can be profitable at scale, and it's aiming to get back there.

If you buy in at this price, don't expect high gains soon. If you have the ability to wait it out, Wayfair stock is likely to reward investors in the long run.