Wayfair Inc. (W) in Boston is one of the world's top online home shopping destinations. The company sells approximately 18 million goods in categories that include home furnishings, decor, home renovation, and housewares. The company's websites provide furniture, decor, housewares, and home renovation goods under the Wayfair, Joss & Main, AllModern, Birch Lane, and Perigold brands.

The stock has slumped 65.5% in price over the past year and 37.4% over the past three months. In addition, closing yesterday's trading session at $116.68, the stock is currently trading 66.1% below its 52-week high of $343.80.

Recently, Barclays downgraded the stock to Underweight from Equal-Weight and lowered its price target to $103 from $123. Furthermore, the Fed's tightening monetary policy and end of stimulus spending could further impact W's growth in the near term.

Click here to checkout our Retail Industry Report for 2022

Here is what could shape W's performance in the near term:

Surging Inflation

Inflation is a concern for retailers. If they raise their prices to maintain their profits, consumers may experience sticker shock, recoil, and purchase less. Furthermore, decreasing growth following the pandemic boom, including a return to more in-store purchases, increased expenses connected with advertising and courting new consumers, and sourcing from locations in Asia that are experiencing delays, might all have a negative impact on the company's performance.

Inadequate Financials

W's net revenue decreased 11.4% year-over-year to $3.25 billion for the three months ended Dec. 31, 2021. Its operating loss came in at $196 million, compared to an operating profit of $101 million in the prior-year quarter. The company reported a $202 million net loss, versus $24 million in net income in the fourth quarter of 2020. Its loss per share amounted to $1.92 over this period. In addition, its net cash from operating activities declined 71.1% from its year-ago value to $410 million.

Poor Profitability

W's trailing-12-months gross profit margin of 28.4% is 21.4% lower than the 36.1% industry average. Its 0.74% trailing-12-months CAPEX/Sales is 72.2% lower compared to the 2.65% industry average. Also, its trailing-12-months ROA, net income margin and ROC are negative 2.9%, 0.96%, and 2.11%, respectively.

POWR Ratings Reflect Uncertainty

W has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. W has an F grade for Growth and a D for Stability. The company's poor profitability and financials are consistent with the Growth grade. In addition, its  2.83 stock beta is in sync with its  Stability grade.

Among  the 47 stocks in the C-rated Specialty Retailers industry, W is ranked #44.

Beyond what I have stated above, one can view W ratings for Quality, Momentum, Value, and Sentiment here.

Bottom Line

Due to several industry-wide headwinds, the company has lost significant momentum over the past few months. Also, recent analyst downgrades make its near-term prospects look bleak. In addition, the stock is currently trading below its 50-day and 200-day moving averages of $131.33 and $223.06, respectively, indicating a bearish sentiment. So, we believe the stock is best avoided now.

How Does Wayfair Inc. (W) Stack Up Against its Peers?

While W has an overall D rating, one might want to consider its industry peers, Canadian Tire Corporation Limited (CDNAF), ODP Corp. (ODP), and TravelCenters of America LLC (TA), which have an overall B (Buy) rating.

Click here to checkout our Retail Industry Report for 2022

W shares fell $1.06 (-0.91%) in premarket trading Tuesday. Year-to-date, W has declined -39.14%, versus a -3.76% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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