You Will Regret Not Shorting Wayfair
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.
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.
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, 2016By Ayush Singh