2. Wayfair Inc. (NYSE:W)
Number of Hedge Fund Holders: 31
Short Interest as of November 14: 28.54%
Wayfair Inc. (NYSE:W) engages in the e-commerce business in the United States and internationally. It is one of the most shorted stocks to consider investing in. On October 13, Wayfair declared that it has hosted a second Way Day this year beginning at 12:00 a.m. on October 26. The customers took advantage of massive discounts of up to 80% off items spanning furniture and decor, housewares, seasonal decor and more.
On October 31, Truist analyst Naved Khan maintained a Buy rating on Wayfair Inc. (NYSE:W) stock and lowered the price target to $60 from $96, noting that the company expects Q3 results to come in line with muted expectations as inflationary trends and reopening headwinds pose challenges to growth.
At the end of the second quarter of 2022, 22 hedge funds in the database of Insider Monkey held stakes worth $630.5 million in Wayfair Inc. (NYSE:W), compared to 27 in the preceding quarter worth $1.4 billion.
However, hedge fund sentiment around the stock skyrocketed during the third quarter as 31 funds in our database reported having stakes in the company at the end of the September quarter.
In its Q2 2022 investor letter, Value Vulcan Partners, an asset management firm, highlighted a few stocks and Wayfair Inc. (NYSE:W) was one of them. Here is what the fund said:
“We sold Wayfair Inc. (NYSE:W) during the quarter. It was a mistake. Wayfair Inc. is a leading e-commerce retailer of home goods and furnishings. Before our initial investment, we watched Wayfair build its business. As customers increased, revenue per customer expanded, and the company grew year over year. Wayfair invested heavily in its logistics network to handle big and bulky furniture from freight forwarding all the way to last-mile delivery. We believed this created a positive flywheel.
Wayfair became a more cost-effective distribution channel for suppliers, reduced delivery times to customers, and improved its customer shopping experience. Nonetheless, at the time, Wayfair did not produce free cash flow, and therefore it did not qualify for investment. During the pandemic, consumer behavior changed, and as a result, the company’s margins and free cash flow reached levels previously not expected for many years to come. We believed the competitive dynamics had changed for the long term in favor of Wayfair and the company qualified for investment.
We initially purchased Wayfair in the fourth quarter of 2020. Although we knew Wayfair would face difficult comparisons post-COVID, we believed the company would continue to generate free cash flow and its value would continue to be stable. The recent combination of persistently high levels of inflation, a possible recession, and the company’s commitment to continue investing heavily for future growth has resulted in negative free cash flow. We believe sustainable free cash flow is the key ingredient to long-term value stability and the company’s future free cash flow is in question. Therefore, we followed our discipline and sold Wayfair.”
