Luke Lango Issues Dire Warning

A $15.7 trillion tech melt could be triggered as soon as June 14th… Now is the time to prepare.

Tue, June 6 at 7:00PM ET

Wayfair Inc Stock Is Destined to Be a Loser. Get Out While You Can

Wayfair stock - Wayfair Inc Stock Is Destined to Be a Loser. Get Out While You Can

Source: Scott Lewis via Flickr (Modified)

Let’s just say I’m not a fan of Wayfair Inc (NYSE:W) or Wayfair stock but before you start sending me emails about why I’m wrong, let me just say that my wife and I recently ordered some chairs from the company and our experience was perfectly wonderful.

As far as I’m concerned, Wayfair stock goes under the category of “great company, bad stock.” Here’s why.

Up 184% Since IPO

Wayfair stock went public on Oct. 2, 2014, at $29 a share for an annualized total return of 35%. If you bought IPO shares and still are holding, you’ve done well despite the recent 23% hit from a less-than-stellar earnings report.

Good for you. Like a good run at the craps table, Kenny Rogers has some sage advice.

It’s one thing for your stock to increase by 184% in one of the longest bull markets in history; it’s another to do so when they’re headed in the tank. Now, I can’t say for sure when the markets will retreat, but they always do and when that happens, Wayfair will be found to wear no clothes.

Back in October 2014, I gave InvestorPlace readers five reasons to avoid the Wayfair stock IPO. I’ve got to be honest, if I had to go back and rewrite the article, I wouldn’t change a thing.

This is one stock that really is a fairy tale come true.

The Margins Smell

Before I get into my rationale for avoiding Wayfair stock, I suggest you read Ian Bezek’s Feb. 26 article about the company. Bezek gives a great synopsis why now is not the time to be a hero.

In other words, sell while the getting is good.

Now back to Wayfair’s margins.

Ian mentions three competitive threats to Wayfair: Walmart Inc (NYSE:WMT),, Inc. (NASDAQ:AMZN), and Inc (NASDAQ:OSTK).

Below is table of all four companies’ gross margins and operating margins for the most recent quarter:




Operating Margin













If you’ve followed Wayfair for some time, neither number should come as a surprise to you. In fact, I’m sure your entire thesis for holding Wayfair stock is that the -5.0% will someday be +5.0% because it’s a clear online leader in home goods utilizing an inventory-light business model to deliver growth for shareholders.

Sounds like a good plan.

But I have two problems with this utopian view of Wayfair’s position within the massive home goods and furnishings industry.

First, there’s an awful lot of competition at every price point from the low-end consumer earning 60K a year to the high-end buyer bringing home more than $175K. More importantly, virtually every one of these companies it competes with makes money at their current margins.

For Wayfair to win, it’s going to have to take significant market share and I just don’t see that happening.

Secondly, I don’t understand why Wayfair would bother expanding internationally until it was making consistent EBITDA from its U.S. operations. Specifically, in the last three years, its U.S. operations have generated adjusted EBITDA of $31.0 million (2015), $176,000 (2016), $35.9 million (2017).

That’s an EBITDA margin of less than 1% in 2017 to go along with a $102.9 million loss internationally and growing from just $567 million in revenue.

It doesn’t make sense.

Especially since Wayfair basically has no inventory. It should be making profits like Alibaba Group Holding Ltd (NYSE:BABA) but it’s not.

Bottom Line on Wayfair Stock

Anyone who’s read my stuff for any length of time knows I’m not afraid to admit when I’m wrong about a stock. This isn’t one of those times.

For me, the margins tell it all.

As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

©2023 InvestorPlace Media, LLC