A 5% dip during Tuesday’s session was the latest in a run of red days for Wayfair Inc (NYSE: W) stock. It came as it did in the days after the benchmark S&P 500 index set a fresh all-time high, which will have made it worse for investors. 

They’d have been forgiven for thinking at the start of May that the online furniture stock would easily outpace the market for the entire month and potentially the whole quarter, if not longer. This optimism came from the stock’s Q1 earnings report at the start of the month, which saw the headline numbers easily top analyst expectations. 

Post-Earnings Report

In the immediate aftermath, it was like a fire had been lit under the stock, which, up to that point, had been trending down after forming a bearish-looking double-top pattern. Indeed, such was the post-earnings enthusiasm that Wayfair shares swung from having lost 30% over the preceding month to gaining 55% through last week. 

Sure, they’re still up 25% compared to the S&P 500’s 6%, but the rapid narrowing of the gap will be a tough pill for Wayfair investors to swallow. The report showed that it was the company’s sixth straight quarter of share gain, and several analysts have spoken bullishly about its prospects in recent weeks, too. 

This lends itself to the theory that even with the gains it’s currently holding onto, Wayfair has a lot more to give. The softening in the stock over the past week could be viewed as some profit-taking for investors and an entry opportunity for everybody else. 

Bullish Upgrades

Consider the update from the team at Needham & Company, which reiterated their Buy rating on Wayfair stock just last week. Or that of Argus, which on the same day upped its rating from a Hold to a Buy. The latter’s price target of $83 points to a further upside of some 30% from current levels, and were Wayfair to hit that in the coming weeks, they’d be above their post-earnings high of $76. 

It would also mean they’d be on the verge of setting a new high in their efforts to undo the vicious sell-off of 2021 and 2022. To do this, they’d need to trade above last August’s $90, but at least 2 heavyweight analysts expect them to do this or to come very close at least. In their bullish update earlier this month, the Piper Sandler team gave Wayfair shares a price target of $91, while Morgan Stanley gave them one right on the money at $90. 

Morgan Stanley’s targeted upside of 40% coincided with their inclusion of Wayfair on a list of well-positioned but undervalued consumer stocks. Their concerns about consumer spending, in general, are driven by what they called a “triple whammy” of headwinds against consumer and retail companies: falling unit growth, falling pricing power, and a decoupling of retail stocks from the broader risk-on sentiment present in other industries.

Attractive Risk/Reward Profile 

However, in their eyes, Wayfair offers investors an “asymmetric risk/reward skew” that makes them stand out against their peers. Considering Morgan Stanley is far from the only team of analysts calling for more upside in Wayfair, this should be more than enough to justify its inclusion on any watchlist. 

In terms of timing an entry, it’s worth watching closely to see when the current bout of selling runs out of steam. This could be characterized by tightening the daily trading range and a defiant rally into a close after a fresh low has been set.