Is Wayfair About to Crash and Burn?

I have been bearish on Wayfair (W) for a long time, however, the stock has stayed above $40 in the reference time period. Although my initial short recommendation has resulted in 10% profits, I think the stock has a lot of room to fall, making it an ideal short at current levels.

Heading into the earnings season, I’m bearish on the stock market due to the earnings recession. I think investors should have at least 40% of their portfolios short with companies that can fall even in the most bullish of markets. And Wayfair is one of those companies.

I believe investors can hedge against a market correction by shorting stocks like Wayfair.

With corporate earnings expected to fall over 8% year over year, I think Wayfair is an ideal short candidate going into earnings.

Earnings estimates

Due to the falling corporate earnings estimates, analysts have been reducing their estimates. The bar is set too low and it will be easy for a majority of the companies to beat the estimates. Wayfair is no exception as the company’s earnings estimate has fallen from -$0.19 two months ago to -$0.33 now.

Given the low estimate, there’s a good chance that Wayfair will surpass the target yet again. However, that won’t be good news for Wayfair longs. I don’t think Wayfair can sustain its current valuation in the face of eroding fundamentals.

In addition, insiders have been consistently cashing in on the stock for months. Wayfair’s insiders have sold tens of millions of dollars worth of shares in the last few months. Even the insiders don’t believe that Wayfair can sustain its current valuation.

My current price target for Wayfair is about $20, however, I wouldn’t be surprised to see the stock go a lot lower in the longer term. However, this earnings season can kick start Wayfair’s crash, which is why I would recommend investors to proceed with caution.


Given the growing losses, I don’t think Wayfair will be trading over $40 after the earnings season. I am bearish on the entire stock market and I think investors can profit a correction by having a big short position. And as of now, Wayfair, along with Mobileye (MBLY), is my best short recommendation. Thus, I would suggest investors initiate a short position in Wayfair before the commencement of the earnings season.

Published on Apr 18, 2016
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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