The short interest of Wayfair ($W), the online retailer of home furnishings and decor, is a substantial 30%.
The stock is up almost 200% from its 52 week low of $28. It’s now in the $80s.
It was a covid star going from the $20s to the $340s.
$W had an earnings call last week and they shockingly had a positive EPS. The only profitable year they have had in the past decade was 2020.
Q2 2023 EPS beat by $0.93 for total earnings of $0.21 per share.
Revenue for Q2 2023 was $3.17B for a beat of about 2.3%.
Yes they sell a lot of home furnishings and decor but analyst expectations for the next decade for revenue is about a 7% CAGR. That is … not optimal.
The good news is they seem to have improved their operations significantly and achieved an EPS positive quarter. Management were stoked about this in the earnings call. 🔗 🔗 However, analysts don’t expect profitability until 2025.
Investors like profitability. If this profitability continues it could push the stock higher. But that revenue growth makes it seem like it’s not actually a great company. Decent, but not great. Buying furniture online seems convenient, but the returns rigamarole seems like it could be excruciating for both customer and company when that coffee table turns out to be all wrong with the painting above the couch.
And does anybody have enough nostalgia for Wayfair that they would want to become an owner, like GameStop? Ikea yes. Bouncing around the ballroom as a kid was fun and love the inexpeensive meatballs with gravy and lingonberry sauce.
A recent EarningsBeats free newsletter wrote about What Can Happen To Heavily-Shorted Stocks:
We keep a Short Squeeze ChartList (SSCL) for a reason. While many stocks on this ChartList seemingly spiral lower for months, if not years, others can take a little bit of fuel (good news) and make it go a very long way. Let’s talk about Wayfair, Inc. (W), which was a darling during the post-pandemic period. During that COVID-restriction period, online furniture and other accessory sales literally went through the roof and W benefited mightily. W was priced for perfection and as the COVID restrictions subsided, so too did W’s revenues. Short sellers had driven the stock lower for a year or so:
Short sellers “borrow” shares from others through their brokerage firm and sell those “borrowed” shares with the promise to buy those shares back at some point and return them to the “lender”. They are GUARANTEED buyers at some point, with unlimited risk as prices can go as high as imaginable. When a heavily-shorted stock like W comes out with a big earnings surprise to the upside, “normal” buyers begin accumulating shares. As key price resistance levels are cleared, other technical buyers jump in and that puts significant pressure on short sellers to buy as well, or face the possibility of unlimited losses. This is what triggers a short squeeze, which W finds itself squarely in the middle of right now.
We would need to do more research on the company to know if it can improve those revenue projections, (over 10% would be much more appealing) and what the intrinsic value is so we could determine a Strike Price, but if you have a trader mentality, 30% short interest is … quite interesting 🙂
