What happened
Many stocks even tangentially connected to the tech world fell spectacularly on Tuesday. Caught in this vortex was online furniture and home furnishings retailer Wayfair (NYSE: W); it didn't help that on the preceding day, an analyst launched coverage of the stock with the equivalent of a sell recommendation.
So what
After market close on Monday, Sanford C. Bernstein inaugurated its coverage, tagging Wayfair stock at "underperform." Analyst Nikhil Devnani placed a $45 per share price target on the shares, which at the time was more than 10% below Wayfair's closing price.
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In his analysis, Devnani wrote that "We believe the pandemic pulled forward demand (low purchase frequency category) and growth is now challenged... The situation is exacerbated by the return to in-store shopping, macro headwinds, and supply chain challenges."
The analyst is also concerned that the retailer's strategy for roping in customers is vulnerable.
"Wayfair has always spent a lot to acquire customers on the thesis that it was building a recurring relationship with that customer, but these factors are now moving in the opposite direction. There's a real risk that home goods eCommerce is structurally more competitive post-COVID," Devnani wrote. While COVID cases are on the rise in many regions and countries, many believe we are past the worst of the pandemic.
Now what
The Bernstein analyst also pointed out that while Wayfair is inexpensive on a key retail industry yardstick, the price-to-sales ratio, it is broadly in line with peers RH and Williams-Sonoma. It also has relatively low free cash flow compared to its rivals, Devnani added.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends RH and Williams-Sonoma. The Motley Fool recommends Wayfair. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
