What: Shares of e-commerce company Wayfair (NYSE:W) tumbled on Monday on no specific news. While the volatility of the stock market was certainly a contributing factor, Citron Research's tweet about the company having "the worst business model on the Internet" on Feb.5 may still be weighing on the stock. At 11:30 a.m. ET Monday, Wayfair stock was down about 9.5%.
So what: Back in August, Citron Research published a report calling Wayfair the most mispriced stock it had seen in years. Citron compared Wayfair to Overstock.com, which has a similar business model, pointing out a big discrepancy between the valuations of the two companies.
On Friday, Citron tweeted that it believes that Wayfair is worth $5 per share, about $30 lower than the current share price:
new day...what to sell now? $W Wayfair still the worst biz model on the Internet. It could go away and no one would care. Tgt price $5— Citron Research (@CitronResearch) February 5, 2016
Wayfair is growing its revenue very quickly. During the third quarter, the company posted 76.7% year-over-year revenue growth, bringing its nine-month total to over $1.5 billion. However, the company is unprofitable, posting a net loss of $62 million through the first nine months of 2015. Wayfair's market capitalization is roughly $3 billion.
Now what: It's unclear whether Citron's tweet is the main reason behind Wayfair's decline on Monday, given that its opinion has been known since August and that various high-flying Internet stocks have taken a beating so far this year. Wayfair's profitability has been improving, but Citron is concerned that a combination of intense competition and high levels of marketing expense will prevent the company from ever producing a meaningful profit.
Of course, the opinion of a single analyst isn't a reason to buy or sell a stock, and investors should always do their own research before making any investing decisions.
Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Wayfair. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.