Wayfair (NYSE:W) is on fire in 2020. Out of 671 companies with a market capitalization of more than $10 billion, Wayfair stock has the 10th-best performance, up 74.9% year to date.
If you were fortunate enough to buy Wayfair stock near its 52-week low of $21.70, which it hit on March 19, you’re sitting on a paper profit of more than 650% over two months. On an annualized basis, that’s near 4,000%.
Now, I don’t want to sound like a killjoy, but some experts believe the markets are more expensive than they’ve been in 20 years. Wayfair, which is notorious for losing money, has been able to generate significant revenue during the novel coronavirus as people working from home look to create more comfortable cocoons.
The good times won’t last. When the world gets back to normal in 12 to 24 months, Wayfair will have to rev up its ad spending once again, pushing its pathway to profitability farther down the road.
But forget about that for a moment and consider the idea that Wayfair’s momentum can’t possibly remain this hot. If it were profitable, or at least much closer to profitability, I might suggest holding tight with cash in hand to buy more should it see a correction.
Alas, that’s not the case for Wayfair, despite its efforts in 2020 to achieve operational efficiency through job cuts, more focused ad spending, etc.
If you’re wise enough to take profits, you might consider these three stocks trading around the same price as Wayfair.
Workday Loses Money Like Wayfair Stock
Trading $10 higher than Wayfair as I write this, Workday (NASDAQ:WDAY) seems to me to be a company that will gain permanent traction post-Covid-19. In April, Workday’s stock gained 18% on positive analyst comments combined with the human capital management software company securing $1.5 billion in additional liquidity to deal with any pandemic-related issues that might surface.
At the end of February, it announced its fourth-quarter results that included a 28.5% increase in sales for the year to $3.63 billion, 85% of which were subscription revenues, and recurring in nature. On the bottom line, it lost $480.7 million on a GAAP basis and earned $463.4 million on a non-GAAP basis.
Importantly, it hadn’t seen any real impact on sales due to Covid-19. The software provider’s first quarter might show otherwise.
Long term, I think Workday’s business is far more resilient to economic pain than Wayfair’s because companies will always need this kind of software. Furniture, to a certain extent, is a discretionary purchase.
Strategic Education Tailor-Made for Covid-19
Strategic Education (NASDAQ:STRA), the company behind Strayer University and Capella University, provides post-secondary opportunities for adult students. In its first-quarter report announced April 29, the company delivered strong results, with sales up 7.6% to $265.3 million, while income from operations increased 16.6% to $44.0 million.
Despite the fact Strategic Education conducts more than 95% of its classes online, the company reacted quickly to Covid-19, including shifting all on-ground courses to an online format.
The company expects an increase in bad debt over the next three or four quarters as students struggle financially during the pandemic. It has a strong financial position – $500 million in cash at the end of March and $250 million in undrawn credit – and will not seek financial aid from the federal government or other government entities.
STRA stock continues to outperform both its educational peers and the Morningstar US Market Index over the short and long term – it has a year to date total return of 7.1% along with an annualized total return of 30.3% – providing Wayfair sellers with an excellent place to put their fortuitous profits.
Covid-19 Spotlights Contract Research
Icon PLC (NASDAQ:ICLR) provides outsourced development and commercialization services to pharmaceutical, biotech, medical device and public health organizations. Interestingly, despite the pandemic putting a spotlight on biotech research and development, its stock has a total return year to date of -2.6%.
However, over the past five years, it has an annualized total return of 20.2%, 350 basis points higher than its diagnostics and research peers.
Started with a team of five people in 1990 in Dublin, it has grown to more than 15,000 employees at 98 locations in 40 countries.
In April, Icon announced its first-quarter 2020 results. They included a 6.5% increase in sales, excluding currency, while growing earnings per share by 4.3%. Despite the fact it expects Covid-19 to affect its business throughout the remainder of 2020, it finished the first quarter with a record backlog of $8.7 billion.
Given it will likely continue to face headwinds over the next two to three quarters, there’s a good possibility you’ll be able to buy its stock for less than $166 where it currently trades.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.