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Forget AMZN, Wayfair (W) Is the Best Retail Stock to Buy

Amazon.com, Inc. (AMZN) has been the golden boy of e-commerce for years, and for good reason. With $74 billion in sales last year, there’s no one close enough to even be an heir apparent. But while the home goods e-commerce company Wayfair (W) is light years away from Amazon as a business, W stock is a better buy than AMZN in my book.

forget amazon inc amzn wayfair stock to buyInvestorPlace‘s Will Ashworth was right when he said two months ago to avoid Wayfair stock in the wake of its IPO. W stock rocketed 30% higher on its first day of trading, closing above $37 per share. But since then W is off more than 40% as the IPO euphoria wore down in a hurry.

Of course, AMZN stock hasn’t done much for investors recently either: AMZN is off more than 20% from 52-week highs as investors are increasingly abandoning hopes for a wildly profitable Amazon.com any time this decade.

Where Wayfair Differentiates Itself

While it’s true that Amazon and its spend-happy CEO Jeff Bezos are losing popularity with Wall Street, the Seattle powerhouse is projected to grow sales by 20% this year and hit $100 billion in annual revenue by the end of 2015. With competitors both small and large like eBay Inc (EBAY) and Overstock.com, Inc. (OSTK) further crowding the industry, just how is Wayfair so different?

The main differentiator is absurdly simple: Wayfair is the fastest-growing of these companies — by far.

Wayfair only became aggregated as a single entity — founders Niraj Shah and Steven Conine began in 2002 with 240 micro-sites — in 2011. By 2012, total sales from the Wayfair name clocked in above $600 million. Revenue soared 52% in 2013 and Wall Street expects 39% sales growth this fiscal year and another 27% sales growth in 2015.

By contrast, analysts expect sales growth between 11% and 20% this year from AMZN, EBAY, and OSTK.

Additionally, Wayfair CEO and Co-Founder Niraj Shah has tapped Wayfair’s advantage in its incredible breadth of offerings: The site boasts more than 7 million different products, and the site has “great visual imaging and merchandising,” in Shah’s words.

Admittedly, there’s one glaring problem with Wayfair’s income statement: The company doesn’t make any money. It’s been doubling down on building brand awareness, and where that’s concerned, the efforts have worked. Shah explained in a recent CNBC interview that the company only began spending heavily on brand awareness in September of 2012, and

“…despite that, inside two years we got to 52% aided awareness, and we believe that’s still got a lot of room to grow and it’s growing really fast — so I think the strategy’s working well.”

Judging by Wayfair’s sales growth, I’d agree that the strategy seems to be working. While the company’s e-mail marketing has helped catapult it to the next level, its growing brand should be able to carry some of the growth going forward. Plus, with the housing market firmly out of its comatose Great Recession state, the demand for home goods products — in other words, a secular lift in demand in Wayfair’s sub-industry itself — should help take the stock higher.

No, there are no profits at Wayfair today. It might not even be profitable next year. But I applaud the CEO for positioning the company for long-term growth and will stand by my conviction that W stock is a buy.

As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid.

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