Wayfair Shares Are Fully Valued; Maxim Downgrades To Hold

Seeing little room for further upside, Maxim analyst Tom Forte has downgraded Wayfair Inc W from Buy to Hold (check out Forte's track record).

Forte believes the stock is now properly pricing in, “the company's ability to generate significant revenue growth over the next three-year (we project a ~28 percent CAGR) and 10-year (15.5+ percent) periods and, the company's ability to meet the top-end of its long-term adj. EBITDA margin target of 8–10 percent, from our view of 4.2 percent in 2019 and negative 2.6 percent in 2016.”

3 Risks To The Downgrade

The analyst outlined three possible risks to his Wayfair downgrade:

1. A faster-than-expected increase in sales would obviously increase share price. "Sales comparisons are much easier the next four quarters (up 60.0, 45.0, 33.1 and 28.6 percent),” Forte noted.
2. As Wayfair expands in Canada, the United Kingdom and Germany, this growth could exceed expectations. “Should future international revenue growth come close to that 100 percent rate and/or the company begin paring back the international profit losses, our downgrade could prove premature,” Forte said.
3. Companies like Costco Wholesale Corporation COST, Target Corporation TGT or Wal-Mart Stores Inc WMT could look to acquire Wayfair, as the brand has done a great job so far with disrupting the home goods e-commerce industry. An acquisition of Wayfair would allow theses retailers to become a more dominant player in the e-commerce and home goods industry.

Wayfair was slightly down in Monday's pre-market session, trading at $75.53.

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