NEW BULLISH Plays
Wayfair Inc. - W - close: 38.18 change: +0.94
Stop Loss: 35.90
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on June -- at $---.--
Listed on June 27, 2015
Time Frame: exit PRIOR to earnings in August
Average Daily Volume = 884 thousand
New Positions: Yes, see below
Tonight's new candidate has been outperforming the market and could see a short squeeze. Year to date W is up +92% and shows no signs of slowing down.
According to the company, "Wayfair Inc. offers an extensive selection of home furnishings and decor across all styles and price points. The Wayfair family of brands includes:
Wayfair.com, an online destination for all things home
Joss & Main, an online flash sales site offering inspiring home design daily
AllModern, a go-to online source for modern design
DwellStudio, a design house for fashion-forward modern furnishings
Birch Lane, a collection of classic furnishings and timeless home decor
Wayfair is headquartered in Boston, Massachusetts, with additional locations in New York, Ogden, Utah, Hebron, Kentucky, Galway, Ireland, London, Berlin and Sydney."
Shares of W came to market with an IPO in October last year and priced at $29.00. They opened at $36.00 and spiked up to $39.43 on the first day of trading.
The company seems to be growing at a tremendous pace. Their first earnings report as a public company was November 10th, 2014. Revenues soared +41.7% to $336.2 million. Their direct retail business surged +57%. W said their gross profit was $79.0 million versus $58.6 million a year ago.
Additional 2014 Q3 highlights included the number of active customers for their direct retail business rose +61% to $2.9 million year over year. Their LTM Net revenue per active customer increase $342 or +8.6% year over year and +3.0% from the second quarter of 2014.
W reported their Q4 results on March 4, 2015. The company delivered a loss of ($0.18) per share, which was 10 cents better than expected. Revenues were up +38.4% to $408.6 million, above expectations. Management raised their Q1 guidance significantly above Wall Street estimates.
The company beat expectations again with their Q1 report on May 11th. Results were a loss of ($0.23) per share. Revenues accelerated with a +52% gain to $424.4 million.
Naturally, with this much growth, the management is very optimistic.
Niraj Shah, co-founder, CEO and co-chairman of Wayfair, commented on his company's results, saying,
"We are off to a strong start this year and are particularly pleased with the revenue strength and accelerated growth in our Direct Retail business. We believe the growth rate this quarter underscores the size of the market opportunity, the rapidly changing, and favorable dynamics of how customers purchase home goods and Wayfair's unique position in this large and rapidly growing market segment. Additionally, the increase in our advertising spend last year helped attract new, and higher value customers, driving both revenue growth and advertising spend leverage this quarter. We remain excited about the opportunity ahead as we continue to gain market share and grow."
On the company's conference call the CEO noted that their potential markets are huge. Estimates suggest that spending in their industry will hit $264 billion in the U.S. and $308 billion in Europe by 2018 (a combined total of $572 billion market).
Bears will argue that W's valuations are outrageous. They're probably right. The recent rally in the stock has bumped the company's market cap to $3.24 billion. At the same time analysts are expecting W to operate at a loss for the next two fiscal years.
On a short-term basis the market doesn't seem to care. If this rally continues W could see a short squeeze.
A few months ago in an interview one of the co-founders said that together the two co-founders own between 40% and 50% of the stock. The current float is only 28.8 million shares, which is relatively small. The most recent data listed short interest at 47% of the float.
I noted earlier that on the first day of trading W peaked at $39.43. A few days ago the rally peaked at $39.43 (June 22nd). Afterwards traders jumped in to buy the dip when W tagged its 10-dma. Once W crosses above $39.43 the short squeeze could blast off. That's why tonight we are suggesting a trigger to launch bullish positions at $38.35.
Traders should consider this an aggressive, higher-risk trade. W has been a volatile stock in the past. There's no reason to expect that to change in the near future. Consider small positions to limit risk.
We are listing a call option with this trade but I want to caution you that the option spreads are pretty wide.
Trigger @ $38.35 *small positions to limit risk*
- Suggested Positions -
Buy W stock @ $38.35
- (or for more adventurous traders, try this option) -
Buy the AUG $40 CALL (W150821C40) current ask $3.30
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike