Shares of home furnishings website Wayfair (W -1.94%) are down 91% from their all-time high last year -- and some investors might be inclined to buy a stock down this much, thinking it must be cheap.

However, I don't plan to buy Wayfair shares. I buy stocks when I believe the business can create shareholder value over time. And I have my doubts about this when it comes to Wayfair. Here's why.

How Wayfair makes money

Wayfair works with over 23,000 suppliers to sell their home goods to consumers and professionals. Considering most of these suppliers are small, getting noticed would be hard without Wayfair's help. In some cases, products ship directly from suppliers to end buyers. In other cases, suppliers keep Wayfair's warehouses stocked with stuff. Wayfair then buys the product after an order is placed, ships it, and recognizes revenue from the sale when it gets to the end customer. 

Wayfair estimates that nearly 200 million people in the U.S. alone are comfortable purchasing goods online -- and therefore could be willing to use Wayfair's portal. And globally, the company believes its market opportunity is around $800 billion. 

The size of its opportunity might explain why Wayfair scaled so quickly. The company ended 2017 with almost 11 million active customers who spent $422 annually, on average. As of the second quarter of 2022, it had 24 million active customers spending $537, on average.

Why Wayfair stock is down

Some investors applaud the company's inventory-light business model, but that hasn't translated into highly profitable operations. In part, that's because Wayfair likes to handle its own logistics, and as you might imagine, it's not cheap -- especially when it's tasked with delivering a supplier's item to customers.

Wayfair's gross profit margin has hovered just below 25% for most of its time as a public company and only spiked to 31% in 2020 when sales skyrocketed. But even a 31% gross margin still isn't great. For perspective, that's lower than brick-and-mortar competitors Home Depot and Lowe's

W Gross Profit Margin (Quarterly) Chart

W Gross Profit Margin (Quarterly) data by YCharts

Wayfair lost $197 million in net cash from operating activities in 2019. However, revenue skyrocketed 55% year over year in 2020, resulting in $1.4 billion in net cash from operating activities. In the conference call to discuss financial results for the fourth quarter of 2020, management proudly said, "In 2020, we proved out our path to profitability."

Wayfair's path quickly dead-ended. The company still had positive cash from operations in 2021 but it fell by $1 billion compared to 2020, even though full-year revenue was only down 3%. And through the first half of 2022, it's lost $341 million in net cash from operations even though revenue is only down 14% from the comparable period of 2021.

Wayfair stock hit an all-time high in early 2021 right as management was celebrating profitability. As those profits evaporated, doubts returned regarding the long-term viability of Wayfair's business model and the stock consequently fell over 90% to where it is today.

Wayfair is still finding its way

To be clear, Wayfair is not a stock you should short. The company didn't go from less than $1 billion in annual revenue to over $14 billion in under 10 years without being a real disruptor in its industry. That's not a company I would actively bet against.

However, I can't actively bet on Wayfair either because of the challenges I believe it'll face in coming years. Remember, the company has only demonstrated fleeting profitability in the best of times. And with labor and logistics expenses rising, now is not the best of times.

Moreover, Wayfair is facing more expensive growth ahead. The company has spent $940 million over just the past two-and-a-half years on building out infrastructure. This was largely financed with convertible notes. Wayfair has about $3.1 billion in convertible-note debt.

And now that the stock is down so much, it's unlikely to convert. Therefore, management had to refinance its 2024 and 2025 notes with $600 million in notes that will mature in 2027. Unfortunately, the company's interest rate on these new notes is 3.25% -- more than double what it was before. And unless the stock goes up about 400% in the next four years, it will likely need to refinance $940 million in notes maturing in 2026 at higher interest rates as well.

This is just to finance Wayfair's past growth. But the company will incur more expenses going forward, especially as it starts building out a brick-and-mortar retail store base -- which the company said recently is one of its goals.

In conclusion, Wayfair's profits will likely be slim over the next few years at best. Much of the cash will flow toward investing in the business and financing, not rewarding shareholders. Until that changes, I bet Wayfair stock will struggle to beat the market, which is why I wouldn't buy today.