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Bull of the Day: Wayfair (W)

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Wayfair (W - Free Report)  is a Zacks Rank #1 (Strong Buy) that is a leading online seller of home good products, consisting of furniture and home décor. The company is well positioned in the current lockdown environment as consumers get tired of their homes and look to remodel. Since most retail stores are closed, Wayfair is seeing more traffic and more customers.

The COVID Effect

When investors panicked in March, Wayfairs stock plunged to $22 , down 80% from it January high of $112. However, the stock has seen a massive rally since, seeing a 500% bounce off the lows.

How is this bounce possible?

In March, it was full panic mode and the selling was relentless. But when investors started realizing that some companies might benefit from the stay at home environment, Wayfair shot to the top of the list. With most retail competition closed for the short-term, Wayfair has thrived catering to people that have time to remodel homes.

The company announced in early April that they will meet or exceed their Q1 guidance due to revenue growth. Here is a statement from the company:

Wayfair continues to see strong demand across most home goods categories in both its US and International segments. After entering the month of March with gross revenue growing at slightly below 20% year-over-year, consistent with January and February growth rates, Wayfair saw this rate of growth more than double towards the end of March. This run-rate has continued into early April. 

The stock had already bounced to $50 before this positive news. However, the guide for Q1 accelerated the move and the stock shot up to $60 that day and has doubled from there since.

The question going forward is if all the news is priced in and if there is more room higher.

Estimates Rising

Wayfair has seen the momentum and analysts are jumping on board. Over the last 30 days, next quarters estimates have risen by 26%, from -$2.10 to -$1.55. For next year, we see another big jump over that same time period. FY 2021 estimates have gone from -$8.33 to -$6.81, a rise of 18%.

While the stock has largely reflected these numbers, if the momentum continues the stock will too.

The Technical Take

Wayfair was left for dead in early March. However, the bounce back has the bulls fully in control. The extreme move lower and subsequent move higher gives Fibonacci targets near all-time highs at $170. The stock is volatile and has seen its fair share of ups and downs, but investors should be looking for those highs and buy the dips.

Its not fun to chase stocks higher in the midst of a pandemic, so let’s look at potential buy spots where investors can enter. The 200-day moving average to just under $100, so buy-the dippers would likely want to get in there. However, if the market has another pullback a more patient investor should look for $80 (halfway back from lows) and the 50-day moving average under $70.

In Summary

The stay-at-home environment has hurt a lot of the companies we are familiar with. However, there is a new breed that is catering to our needs as we get through the lockdowns. While a lot of these stocks have already made their moves higher, there is room for them to continue. Investors should take the opportunity in broad market weakness and sniff out stocks like Wayfair when they pullback.

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