Wayfair (NYSE:W) stock is popping up sharply on Monday following Piper Sandler’s positive assessment of the business and underlying industry. Analyst Peter Keith sees stabilizing trends in the home furnishings sector. Wayfair’s sales also appear to be improving, presenting an attractive valuation as a result. As of this writing, W stock is up more than 4% today.
According to Seeking Alpha, Keith upgraded Wayfair to “overweight” from “neutral.” Along with the expansion of the top line, the e-commerce firm also stated that it’s taking back market share. Interestingly, supplier feedback on Wayfair following the company’s June Supplier Summit reached its “most positive level in more than two years.”
“Importantly, suppliers now seem more confident in leaning into Wayfair’s supplier services (CastleGate, advertising, etc.), which is important for ongoing gross margin expansion,” said Keith in a research note.
Adding to the cause for W stock, the timing of this upgrade couldn’t be better for shareholders. On Aug. 3, Wayfair will disclose its latest earnings results. Enticingly, the company has been riding a hot streak of five consecutive sales beats. This time around, analysts expect Wayfair to report $3.09 billion in revenue and post a loss per share of 72 cents.
W Stock Seems Undervalued, But Investors Should Be Cautious
Naturally, anticipation is running hot for W stock on hopes that the company will post another upbeat earnings report. Since the beginning of 2023, Wayfair shares have delivered shareholder returns of more than 130%. Over the trailing one-year period, shares have gained approximately 35%.
The value proposition is also fueling the flames of positive speculation for W stock. As Seeking Alpha points out, the market prices Wayfair stock at an enterprise value-to-revenue multiple of 0.9 times. Relatively speaking, that’s an attractive ratio compared to the five-year mean of 1.2 times.
Still, investors shouldn’t jump into W stock without considering some of the risks involved. While a quick check of Gurufocus confirms the EV-to-sales ratio, the aforementioned multiple actually ranks worse than about 53% of companies in the cyclical retail industry. More consequentially, Gurufocus also notes that Wayfair could be a possible value trap. The site mentions four red flags, including a distressed business based on a poor reading of its Altman Z-Score.
Finally, fundamental risk could impact W stock if the housing market doesn’t cooperate. According to Technavio, anticipation has run hot for the home furnishings industry due to expected booming construction of residential and commercial real estate. However, if this holistic framework doesn’t pan out, Wayfair could face troubles.
Why It Matters
Presently, Wall Street analysts peg W stock as a consensus “moderate buy” rating on TipRanks. This assessment breaks down as 11 “buy” ratings, seven “hold” ratings and three “sell” ratings. However, the average price target for W lands at $61.71. Because of the impressive performance of the stock so far, this target now reflects roughly 20% downside risk.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
