A report by ril1212 on ValueInvestorsClub provides an investment thesis for Wayfair Inc. (NYSE:W), a stock that is undervalued by almost 170%. We will summarize the bullish stance of the author in this article. W shares were trading at $48.23 when the valuation was done by ril1212, vs. the closing price of $45.53 on Jan 03.
Home decor
Wayfair Inc. provides e-commerce business in the United States and internationally. The company offers approximately thirty million products for the home sector that include furniture, décor, housewares, and home improvement products.
W has a market share of 2%, steadily increasing from 0.7% in 2015. Even though the market share has increased, the stock price has failed to nudge on. Its ability to increase its market share has translated into sales growth from 2019 which is higher than its peers like Ikea (17%) and Williams-Sonoma Inc. (31%). If home sales are taken as a proxy for future revenue projections, W is certainly expected to benefit from the anticipated interest rate cuts.
While revenue growth in the last two years has been negative, the ability to cut costs has led to higher EBITDA. The estimated cost reduction has been to the tune of $2 billion since late 2022 and the management has recently announced that more measures are currently being implemented. These cost-cutting initiatives would enable W to increase its EBITDA even if the industry does not grow. If rates drop, there could be a turnaround for discretionary goods that would further increase the EBITDA for W.
W has trailed its competitors that are trading at their 52-week highs. With a projected EPS of $6.05 in 2027 and a P/E multiple of 20x, the reasonable value of W shares should be $120, 170% higher than its current price. The business prospects combined with attractive valuation make W a potential multibagger.
While we acknowledge the potential of W as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than W but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.