Why This Wayfair Analyst Is Warning Investors They Risk 'Stock Price Going To Zero'

Wayfair Inc W shares are once again back below $40 and are now down more than 85% in the last 12 months. New Constructs CEO David Trainer has added Wayfair to his Zombie Stock list, and Trainer said this week Wayfair investors may still have more pain ahead.

Trainer's Wayfair Call: Trainer first put Wayfair in New Constructs' "danger zone" back in March 2015, and the stock has significantly underperformed the S&P 500 since that call.

He said investors are favoring stocks with real cash flows, strong balance sheets and sustainable profits in an environment of rising interest rates and macroeconomic uncertainty.

"Companies that inherently struggle to produce real cash flows, like Wayfair, are at risk of their stock price going to zero," Trainer said.

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Wayfair has burned through $1.3 billion in cash over the last 12 months, and Trainer said raising additional capital would likely be difficult and costly for Wayfair at this point.

Wayfair Underperforms Peers: From a fundamental perspective, Trainer said Wayfair's net operating profit after-tax (NOPAT) margin, invested capital turns and return on invested capital all fall well short of leading competitors, including Williams-Sonoma, Inc. WSM, Amazon.com, Inc. AMZN and Home Depot Inc HD.

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Wayfair has $4.4 billion in debt and just $670 million in excess cash. While Wayfair's operating expenses have risen, the company reported a 9% drop in revenue and another $283 million net loss in the most recent quarter.

Benzinga's Take: Regardless of whether Wayfair shares eventually drop to zero, there's not much to like about the direction in which the company or the stock is headed at the moment.

Trainer has been dead on so far in 2022 with similar bearish calls on stocks like Blue Apron Holdings Inc APRN and AMC Entertainment Holdings Inc AMC, so investors should certainly think twice before buying the dip in Wayfair.

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