Few companies have rewarded investors in 2020 the way that Wayfair (NYSE:W) has. Like many stocks, W was hit by broad market selloffs in March and the start of September. But in the intervening months, Wayfair stock posted a spectacular run, gaining 1,356% in just five months.
Wayfair stock gets an ‘A’ rating in my Portfolio Grader, but it has yet to fully recover from its losses in early September. The novel coronavirus pandemic definitely lit a fuse under W, thanks to increased online shopping.
Wayfair is additionally set to benefit from a flood of new customers and a growing trend toward setting up properly equipped home offices. I see the current dip in Wayfair stock as a buying opportunity.
Pandemic Key to a Monster Second Quarter
The pandemic has been rough for brick and mortar retailers. Furniture stores have been particularly hard-hit, with showrooms closed for weeks at a time during the lockdown and customers reluctant to venture out even with restrictions relaxed. That’s led to bankruptcies across the industry.
However, consumers shut in their homes haven’t stopped buying. On the contrary, they’ve been on a spending spree to improve their homes. They’ve been doing so via ecommerce and few companies have benefited to the extent Wayfair has. The power of the pandemic was on full display when Wayfair reported its second quarter earnings in August.
Among the milestones the company achieved were the acquisition of 5 million new customers in three months and the fulfillment of nearly 19 million orders.
Revenue of $4.3 billion was up 83.8% year-over-year. Adjusted earnings per share of $3.13 crushed analyst expectations and represented an enormous gain over losses of $1.35 per share reported in Q2 2019. The cherry on top? Wayfair finally achieved an elusive quarterly profit — its first since going public in 2014.
It’s no surprise that in the weeks following the release of Q2 numbers, Wayfair stock climbed to $342.40, an all-time high close.
Equipping That Home Office
In the early stages of the pandemic many companies scrambled to arrange for employees to work from home. During the lockdown, focus was on getting adequate communications in place. Computers, internet connections and webcams were the key purchases.
A large number of employers are signaling that working from home will become a permanent option for at least some of their staff. Many students are also taking remote classes, rather than going to school in person. The result is that home offices are now in the spotlight. New home designs are already beginning to incorporate formal home office workspaces.
Now that working from home and/or learning from home have begun to transition from temporary to being at least a semi-permanent state of affairs, that means the move is on to properly furnish these workspaces as well. Working at the dining room table no longer cuts it. People are buying ergonomic office chairs and workstations for their homes.
Wayfair offers a full range of office furniture that rivals any brick and mortar retailer. The company is set to not only benefit from consumers who are continuing to improve their homes during the pandemic. There’s also going to be growing (and ongoing) demand for home office furnishings.
Changing Consumer Habits, Lasting Momentum
Consumers were already warming up to the idea of buying furniture online before the pandemic hit. A 2018 report by eMarketer projected that U.S. e-commerce sales of furniture and home furnishings was on track to hit $50.32 billion that year. That represented annual growth of over 18%, making online furniture shopping the e-commerce segment with the fastest growth rate. The growing adoption of online furniture shopping was being driven by Gen X and millennials. These demographics were comfortable with making a big ticket purchase based on photos and recommendations without getting hands-on in a traditional showroom.
However, the pandemic has become the great equalizer. When furniture stores were shuttered during the lockdown, online was the only option for anyone who wanted to buy furniture. Even as stores re-opened, people have been cautious. Not everyone who bought furniture online in April will continue to do so — but some previous holdouts have become converts, and that’s going to have the effect of helping to keep Wayfair’s impressive momentum going.
Bottom Line on Wayfair stock
The biggest risk in Wayfair stock at the moment is the potential for consumers to suddenly lose interest in online shopping. I don’t think that’s going to happen, even once the pandemic is just a distant memory. Once people try online shopping, they tend to stick with it. Many of the new customers that Wayfair has been signing up will continue to shop on the site. And in the near term, there’s a winter where people will be shut in their homes and tempted to redecorate. Along with a need to furnish home offices.
Q2 may have been Wayfair’s first profitable quarter, but don’t expect it to be the last. And don’t expect Wayfair stock to remain at current prices for long.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
