Is Wayfair (W) A Smart Long-Term Buy?

·3 min read

Alphyn Capital Management, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio net return of 3.9% was recorded by the fund for the fourth quarter of 2021, and a 13.9% return for the past year, while its S&P 500 TR benchmark delivered a 28.7% return in 2021. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.

Alphyn Capital Management, in its Q4 2021 investor letter, mentioned Wayfair Inc. (NYSE: W) and discussed its stance on the firm. Wayfair Inc. is a Boston, Massachusetts-based online store company with a $14.6 billion market capitalization. Wayfair delivered a -26.03% return since the beginning of the year, while its 12-month returns are down by -49.48%. The stock closed at $140.52 per share on January 27, 2022.

Here is what Alphyn Capital Management has to say about Wayfair Inc. in its Q4 2021 investor letter:

"I initiated a starter position in Wayfair, the online furniture retailer. I have been following the company for a few years but had refrained from pulling the trigger as the company had not been profitable. I wanted to see how the company executed its ambitious logistics plans. Wayfair has been a big beneficiary of Covid, as people focused on their homes and home offices during lockdowns, and the company posted a little under one billion dollars in Free Cash Flow in 2020 (after subtracting share-based compensation). In the fourth quarter, Wayfair’s stock declined 40% from its high as the market began to worry about the potential short-to-medium-term impact reopening might have on demand for furniture, which I felt presented a decent opportunity to initiate a small position. (With the benefit of 20-20 hindsight, waiting a few more weeks would have been better!)

The furniture market has a few key characteristics. While 60% of goods sold are commodities (think paper towels, e.g. Bounty, and batteries, e.g. Duracell), and 20% are groceries, 10% are fashion, and 10% are home goods. In contrast to commodities, shoppers in home goods are searching for unique, personal items. Shoppers like to browse and get inspired, and text searches alone are less effective in describing, say, a particular type of sofa one hopes might fit in a living room. Moreover, most furniture is unbranded and produced by a fragmented industry of small and medium-sized businesses across the globe. Therefore, an aggregator such as Wayfair has a significant negotiating position (classic Porter’s 5-forces). Finally, furniture is bulky, heavy and prone to damage, which is challenging for traditional online delivery logistics. For example, 30% of Wayfair’s products are too big to be shipped by FedEx or UPS..." (Click here to see the full text)

Our calculations show that Wayfair Inc. (NYSE: W) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. Wayfair was in 31 hedge fund portfolios at the end of the third quarter of 2021, compared to 35 funds in the previous quarter. Wayfair Inc. (NYSE: W) delivered a -43.91% return in the past 3 months.

In December 2021, we also shared another hedge fund’s views on Wayfair in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.

Disclosure: None. This article is originally published at Insider Monkey.