Hyper-growth furniture e-retailer Wayfair (NYSE:W) reported third-quarter numbers before the bell on Thursday, and the market didn’t like what it saw. Wayfair cruised by revenue estimates, but missed profit estimates by a mile. Wayfair stock dropped by more than 16% in response.

This big revenue beat, big EPS miss dynamic is nothing new for Wayfair. As a hyper-growth company following the Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) model, Wayfair is currently focused on maximizing revenue growth at the expense of profits. As such, this company always beats revenue estimates, but consistently has trouble topping profit estimates.

This has worked well for W stock. Although Wayfair has missed EPS estimates in each of the past four quarters, Wayfair stock managed to more than double during that stretch — from $70 to $150. The market simply hasn’t cared about profits.

Until now.

With rates on the rise and global economic growth slowing, down-the-road profits are both less valuable and less certain than before. As such, big revenue beats and wide profit misses won’t cut it for Wayfair stock in the current environment. At some point, this company needs to start showing profit improvements alongside robust revenue growth.

That point is now. Until then, it will be tough for Wayfair stock to bounce back. There are certainly things to like about this stock long term. Given secular growth tailwinds in furniture e-commerce and potential for margin improvement, I realistically see Wayfair stock more than doubling within the decade. As such, this is a stock I want to own for the long haul.

But, not now. The rally in Wayfair stock won’t resume until profits improve. Thus, until that happens, the sidelines seem like the best bet.

Wayfair Needs to Show Profit Improvements

The big revenue growth model. The market share expansion model. Or the wait-until-we-are-big-to-be-hugely-profitable model. Call it what you want. Amazon and Netflix perfected it over the past several years. Both companies focused on growth and invested big to dominate their respective markets, all at the expense of profits. Then, once Amazon dominated e-commerce and Netflix dominated streaming, each company turned the wheel on profitability, and boom, profits soared.

Now, everyone else is trying to copy that model, and perhaps no one more so than Wayfair.

Over the past several years, Wayfair has morphed into the epitome of big revenue growth with no profits. This is a 40%-plus revenue growth company with 30%-plus customer growth and 40%-plus order volume growth. Yet, gross profit margins are pretty low at around 23%, and the company continues to spend an arm and a leg to supercharge growth. Net result? Adjusted EBITDA margins and net profit margins are consistently negative, and have actually been falling recently.

This combination of narrowly negative and falling profit margins and huge revenue growth has worked. Given secular tailwinds in furniture e-retail, everyone gave Wayfair the benefit of the doubt, and assumed that this company was following in Amazon’s footsteps and would eventually be enormously profitable.

But, the economic backdrop has suddenly changed. Amazon and Netflix masted their growth models in the middle of an economic expansion cycle and with rates at all time low levels. Thus, down-the-road profits had a ton of clarity because of expectations for continued robust economic growth, and were worth quite a bit today because of low discount rates. Today, though, we are in the last few innings of an expansion cycle and rates are on the rise. Thus, down-the-road profits don’t have a ton of clarity because economic growth is expected to slow meaningfully, and they aren’t worth as much today because discount rates are higher.

The big drop in Wayfair stock following Q3 numbers, which featured the same old big revenue beat and big profit miss, is the market telling Wayfair that this dynamic isn’t going to cut it anymore. The market needs profit improvements. Thus, until adjusted EBITDA margins stop dropping and start improving, Wayfair stock will struggle for gains.

Long-Term Growth Narrative Is Promising

For the record, I think Wayfair stock has huge return potential in a multi-year window. But, this stock won’t realize that return potential until profits start to improve. After all, the entire bull thesis is predicated on margins trending higher. Until the market gets proof that this is possible, Wayfair stock will remain weak.

Nonetheless, looking at Wayfair’s top-line fundamentals, you have a company immersed in the secular growth digital commerce market growing revenues at a 40%-plus clip and customers at a 30%-plus clip. Moreover, orders, revenue per customer, and orders per customer are all up big. In other words, not only is Wayfair growing its customer base, but those customers are also spending and ordering more on Wayfair.

These are all positive signs. The furniture e-retail market is expected to grow at a 15% compounded annual growth rate over the next decade. Given Wayfair’s early leadership in this market and positive fundamentals, this company should easily grow revenues at the market-average 15% rate. That would put revenues at $20 billion in a decade.

Management’s long-term margin targets include 26% gross margins and a 17% operating expense rate. The current gross margin rate is just over 23%. Thus, three points of expansion on gross margins over the next decade is reasonable, so long as wholesale economics improve with scale. The harder part to believe is the 17% opex rate. The current opex rate is 28% and growing due to hiring investments. Ultimately, though, sustained 15%-plus revenue growth should drive opex leverage, and ultimately push the 28% opex rate down to 17%.

Management’s long-term EBITDA margin target of 9%, then, is reasonable in a 10 year window. Taking out 2% for D&A, you are left with EBIT margins of 7%, or total EBIT of $1.4 billion on $20 billion in revenues. Taking out 20% for taxes, that leads to just over $1.1 billion in net profits.

At that point, Wayfair stock will get anything between a market-average 16 forward multiple and a growth-average 20 forward multiple. Thus, you are talking about a market cap in decade of somewhere between $18 billion and $22 billion. Wayfair’s current market cap is under $9 billion. Thus, Wayfair stock has doubling potential within the decade.

Bottom Line on W Stock

Wayfair stock has huge upside potential in a long-term window, but it won’t realize that potential until margins improve. Thus, until you see adjusted EBITDA losses start to narrow, it is probably best to stay away from Wayfair stock.

As of this writing, Luke Lango was long AMZN and NFLX.