The significant decline of Wayfair's stock by 24% occurred during October.
Wayfair's shares experienced a decline in value last month, with a decrease of 3.74%, as the online home-furnishings retailer faced challenges from elevated interest rates and a subpar earnings report at the beginning of November.
The company has encountered difficulties since its surge during the pandemic, as Americans have reduced their home-related spending due to rising interest rates and the residual effects of low mortgage rates during the pandemic, resulting in a significant drop in existing home sales.
Furthermore, Wayfair recorded a decrease of 24% in October, according to data from S&P Global Market Intelligence. As depicted in the chart below, the majority of the stock losses occurred in the latter half of the month, which coincided with a surge in the 10-year treasury yield, which exerted pressure on Wayfair shares.
Continuing struggles for Wayfair
Investors in the home-improvement sector, including Wayfair, have been anticipating a rebound in the housing market. However, after the Federal Reserve reduced the benchmark federal funds rate by 50 basis points in September, investors had expected a decline in interest rates instead. Conversely, they experienced a rise in mortgage rates, which are closely linked to treasury yields, leading to a diminished expectation for a housing market recovery.
Wayfair managed to secure a buy rating from Needham, who reinstated coverage on the stock with a price target of $60, based on their belief in a positive tailwind from the eventual housing-market recovery in 2025.
Later in the month, Piper Sandler reduced its price target on Wayfair from $67 to $63, citing slowing demand in September and October, as well as pressure from advertising expenditures resulting from political ads. Despite the lower price target, Piper Sandler maintained its overweight rating on the stock.
Wayfair falls short on earnings
Wayfair's woes continued in November, as the stock dropped by 6% following the announcement of its third-quarter earnings report on Nov. 1.
The company reported yet another decrease in revenue, which came in at $2.88 billion, aligning with estimates, and improved adjusted earnings per share from $0.13 to $0.22, surpassing estimates of $0.15. However, Wayfair also forecasted a further decline in revenue for the fourth quarter.
Lastly, the stock dipped again on Wednesday after Trump's election, as treasury yields climbed with the news, which investors interpreted as a disadvantageous turn of events for home-improvement retailers such as Wayfair.
If the housing market persists in its downturn, it is likely that Wayfair will continue to face challenges.
In light of the housing market's downturn, investors might need to reassess their finance strategies, potentially reconsidering their investments in home-improvement companies like Wayfair. The company's significant drop in revenue forecast for the fourth quarter could further affect its financial position and investors' returns, which are usually reliant on money invested in stocks and bonds.
