The Wayfair (W Stock) bull market is way over

Wayfair Inc (NYSE: W) was one of the most exciting plays of the post-pandemic world but now that story is played. The two things that are abundantly clear in the Q4 results are that 1) the COVID tailwinds are no longer blowing and 2) the headwinds are mounting. The key takeaways are that revenue and earnings are in sharp decline, margins are narrowing to the point of loss, and the outlook for the first half of 2022 really isn’t much better. While there are still strong trends within the home improvement industry, eCommerce, and even Wayfairs own business there are no longer trillions of dollars of stimulus just laying around waiting to be spent and the cost of everything is going up. Based on what we see in the charts, this stock is in for a rough ride that could take it back to the pandemic bottom before things start looking better again.

Wayfair misses on the top and bottom lines

Wayfair had a terrible quarter but we need to keep things in perspective. The company’s revenue grew 44% in last year’s Q4 so a little giveback is to be expected. The problem is the $3.25 billion in revenue is down 11.4% from last year and missed the Marketbeat.com consensus by almost 100 basis points and the bad news doesn’t end there. The company reports a 12.5% decline in active customers and a 26.7% decline in delivered orders that were slightly offset by a 20% increase in order size. These are not good metrics and do not point to growth in the coming year.

Moving down to the earnings, the company reported a 200 basis point decline in gross margin and operating margin contraction into negative territory that we chalk up to input costs, freight, and rising wages. The really bad news is on the bottom line where adjusted earnings came in at -$0.92 reversing last year’s $1.24 in adjusted profits and missing the consensus by $0.22, a sign the company’s efforts to keep up with inflation are not doing the trick, at least not yet. Wayfair did not give any guidance but we are expecting a seasonal decline in Q1 results and to well below last year’s levels.

The analysts see something in Wayfair

The analysts have yet to comment on Wayfair’s Q4 results but they are holding it regardless of the drop. The 23 analysts covering Wayfair rate if a firm Hold with a price target more than 135% above the new lows. This target is down a bit from the peak set last year and may come down further but would still present a healthy upside should the market reverse. The institutions helped put the top in the stock last year with some heavy selling in Q3 but that trend has changed. The institutional activity has been very light in the time since but was net-bullish coming into the report.

The technical outlook: Wayfair may have hit bottom

The Wayfair correction story includes a high 21% short interest that continues to way on price action. The good news is that support appears to be present at the new low and has sparked at least some short-covering if not a short-covering rally. Assuming the market follows through on this move we see the stock moving back up to the $150 level where selling may pick up again. If Wayfair is not able to rebound from here a fall to the $70 to $80 range is expected.

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