When a well-known analytic firm puts a company on its “most vulnerable” list, that’s generally not a good sign. Wayfair (NYSE:W) has unfortunately been targeted for that list, and this might make some Wayfair stock holders nervous.
But should it? After all, Wayfair has definitely benefited from the e-commerce tidal wave that has buoyed online retailers in 2020. Like many companies with online offerings, Wayfair rebounded swiftly as shoppers chose to shop online instead of in brick-and-mortar stores.
With a recent surge in new customers and revenues, should Wayfair really be seen as vulnerable? It’s a question worth considering, as there are two sides to every story and informed investors should consider both the bullish and the bearish arguments.
A Closer Look at Wayfair Stock
Interestingly, Wayfair stock wasn’t doing spectacularly well in the months prior to the outbreak of the novel coronavirus. From late 2018 until early 2020, Wayfair shares chopped around and made little to no progress.
Then came the coronavirus, which rattled the stock market and hit Wayfair’s shareholders hard. While Wayfair stock drifted along at the $100 level in January of this year, the share price plunged to its 52-week low of $21.70 in March.
Evidently the market rediscovered Wayfair’s value proposition, as the bulls soon regained control of the price action. The bears didn’t stand a chance as Wayfair stock headed for the skies, reaching $314.10 as of Aug. 17.
So, anyone who bought at or near the bottom and held their Wayfair shares made once-in-a-lifetime returns. That doesn’t sound like a “vulnerable” stock to me, but let’s dive deeper to see what the data reveals.
On the Hit List
S&P Global Market Intelligence, which is a division of analytic firm S&P Global (NYSE:SPGI), is known far and wide for providing financial market intelligence. When S&P Global Market Intelligence issues an opinion, financial professionals pay attention.
As a result, it was an event of significance when Wayfair stock was added to S&P Global Market Intelligence’s list of the “Most Vulnerable Public American Retailers” this month.
Along with this dishonor, S&P Global Market Intelligence assigned Wayfair a one-year probability of default of 18.6%, as well as a two-year probability of default of 24%.
This is one of those situations in which investors must weigh an opinion versus the facts. The opinion of S&P Global Market Intelligence can’t simply be discounted, but do the facts substantiate such a dire outlook?
I’ll let you be the judge, but I couldn’t find any weakness in Wayfair’s recently reported second-quarter fiscal data. Sure, the Wayfair stock price is elevated, but that’s justifiable in light of the company’s outstanding financial figures.
Here are some of the highlights from Wayfair’s second quarter:
- 5 million new customers added
- $4.30 billion in revenues, marking an 83.7% increase and surpassing the FactSet consensus estimate of $4.07 billion
- Adjusted earnings per share of $3.13, easily beating the FactSet consensus of 97 cents per share
- 18.9 million orders delivered, signifying a massive 106.2% increase
- $273.9 million of net income, demonstrating a dramatic improvement over the $181.9 million loss recorded during the same quarter of the previous year
There’s little doubt that the coronavirus-induced shift to e-commerce helped Wayfair achieve these spectacular stats. Canaccord Genuity analysts led by Maria Ripps noted the strength of the home-goods category in e-commerce, adding that “longer term the pandemic could be a catalyst for accelerating e-commerce adoption of the category.”
Indeed, the acceleration isn’t likely to cease anytime in the near future. If Wayfair is “vulnerable” to anything, it’s an avalanche of demand. And that’s not such a terrible problem to have.
The Bottom Line
With all due respect to S&P Global Market Intelligence, I’ll have to disagree with the addition of Wayfair to the “Most Vulnerable Public American Retailers” list.
Anyone holding Wayfair stock should feel perfectly content as the company’s beating expectations and riding the e-commerce wave to the top.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.