You Will Regret Not Shorting Wayfair

As I have said time and time again, companies that have a long history of loss-making tend to underperform. The scenario gets worse in a bear market as money losing companies get absolutely hammered by the Wall Street. Investors who have been reading my articles know that shorting such companies has yielded double-digit returns over the last few months.

Since I expect the market correction to continue, I think investors should still short such companies. Among them, my favorite pick is Wayfair. I have already called Wayfair my top short idea for 2016 and the stock is down almost 26% since my recommendation.
I expect Wayfair’s downfall to continue in 2016 and would still recommend investors to short the stock.

Andrew Left’s Attack

Wayfair was not as badly punished by the market as other stocks. However, the recent interview by Citron Research’s Andrew Left pulled the stock back by over 20% in just two days. Left gave some interesting insights into Wayfair’s business and explained why the company’s business model is unsustainable in the long-run.

Wayfair, due to its rapid expansion, is spending tens and millions of dollars every quarter on marketing and as a result, the company’s revenue growth is very strong. Over the last few years, I have covered many such companies that record strong revenue growth at the cost of profits and my short calls on most of them have been profitable. The likes of Yelp, Westport Innovations, Pandora, and SolarCity, etc. are all trading considerably below their all-time highs, and I expect Wayfair to end up in a similar position.

Wayfair’s revenue growth doesn’t matter as the company is never expected to turn profitable. Moreover, the company’s insiders, who take a massive portion of their annual salaries in stock, have been dumping Wayfair at a very fast rate. This clearly shows that even Wayfair’s management doesn’t believe in the company’s long-term future and they are getting out of the stock before others get a chance.

I, being a big fan of the long-short strategy, would advice investors to short the stock as it has considerable downside to offer.

Conclusion

Investors should avoid loss making companies in the current market. Wayfair’s poor business model will never allow it to turn profitable and the company will definitely head lower in the coming months. Hence, I think Wayfair is a screaming short despite the recent plunge with a possible downside of up to 70%.
Published on Feb 11, 2016
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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