Wayfair (W), the online seller of home furnishings, started the year with bleak prospects, as the stock was well off its highs. But 2015 has proved to be a significant turning point for the stock — for the better.
Wayfair stock is now up a sizzling 128% year-to-date. And the momentum is showing no signs of slowing down. On the heels of the most recent earnings report, Wayfair stock is up about 19% in Wednesday’s trading.
Yet perhaps investors should show some caution now that Wayfair has more than doubled in 2015?
Let’s take a closer look at the quarterly results to see whether Wayfair stock is worth your time at these levels.
Wayfair Stock Earnings
Revenues jumped 66.4% to $491.8 million, and the adjusted loss came to 15 cents per share. Meanwhile, the Street was expecting a loss of 29 cents on revenues of just $439.4 million. Those numbers resulted in a big-time beat for Wayfair stock.
Even though losses remain at Wayfair, the negative cash flows are still moderate, coming to $5 million or 1% of revenues. There is also a hefty $381 million in the bank. Besides, investors can be lenient with losses as long as there is strong top-line growth — just ask Amazon (AMZN).
Some other Wayfair metrics that are worth noting include a 54% year-over-year surge in active customers and a 7.5% increase in net revenue per active customer to $357. In fact, repeat customers accounted for 56.6% of total orders in the latest quarter, compared to 51.6% in the prior quarter.
There are several key drivers for the success of Wayfair stock. First, the company has a selection of more than 7 million products from more than 7,000 supplies. There is also an efficient delivery service, which makes for a convenient shopping experience. Keep in mind that Wayfiar has a system that allows for direct shipping from suppliers, which greatly reduces inventory costs.
Wayfair has also been smart by creating its own set of brands, which cater to different tastes, styles and budgets. They include Wayfair.com (a broad-based selection of furnishing and décor), Joss & Main (a flash sales site), AllModern (original designs for modern home enthusiasts), DwellStudio (fashion-forward home designs) and Birch Lane (classic styles).
It also helps that Wayfair is mostly targeting women who are 35 to 36 and have annual household incomes from $60,000 to $175,000. According to the company’s 10-Q: “[W]e believe [this segment is] underserved by traditional brick and mortar and other online retailers of home goods.” The filing also notes that there should be a boost from millennials, who are getting to the age when they will start new families and move into new homes.
So what about the valuation of Wayfair stock? Even with the latest jump, Wayfair stock still trades at a reasonable 2.18 times sales. In comparison, AMZN trades at 2.57 times sales and eBay (EBAY) carries a multiple of 1.87.
But don’t rush in to buy Waifair stock just yet. Let’s face it, about 58% of the float is shorted. In other words, today’s spike probably includes a good amount of covering of these positions. And today’s jump may lead to some profit-taking in the near future. So it’s probably best to wait a couple weeks for things to subside.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
