Half a dozen Wall Street analysts think the plunging stock is worth buying, and one sees upside in 60%.

Investors are betting on an economic recovery, and over the past year, theWayfair (New York Stock Exchange)Stock Code(W)Shares have risen 75%. most of the gains came in 2023, but the stock has held steady so far this year as investors wait for the online furniture seller's next update.

Shares of Wayfair are still down 82% from their highs, and its valuation is still very cheap at 0.6 times 12-month trailing sales. But of 38 Wall Street analysts, 53% say it's time to buy, 47% say it's time to hold, and none say it's time to sell. The median target price has risen 13% from the current price, and one analyst sees a rise of 62% over the next 12 to 18 months.

So, should you follow Wall Street and buy Wayfair stock?

What's wrong with Wayfair?

Wayfair sells furniture through a number of websites that target price points ranging from mass to luxury. It has also branched out into becoming something likeAmazonIt's an easy transition to a third-party platform because it uses a reseller model. This means it doesn't keep inventory; it works with a large group of vendors who display their products on Wayfair's website, and Wayfair orders and processes them.

In theory, this should be a highly profitable business because it has no inventory and no cost of goods sold. But that's not the case. In the early days of the epidemic, Wayfair's sales soared because shoppers spent their money on home furnishings when they were housebound. But like many other successful victims, Wayfair invested to meet high demand, and when demand plummeted, so did sales, leaving Wayfair with a heavy expense burden.

Wayfair has been struggling to absorb these expenses as it seeks to grow sales. After nine consecutive quarters of dismal sales declines, Wayfair reported its second consecutive quarter of revenue growth in the fourth quarter of 2023, with sales increasing slightly by $0.4%. Active customers increased by $1.4% during the quarter, with orders per customer increasing slightly from 1.81 to 1.84.

Profitability metrics are improving. Gross margin for the quarter was 30.31 TP3T, up from 28.81 TP3T in 2022, and adjusted EBITDA was $92 million, a reversal of a $71 million loss in the prior year quarter. Net loss narrowed to US$174 million from US$351 million a year ago, marking the third consecutive quarter of positive adjusted EBITDA and free cash flow.

Wayfair has a chance this year.

Admittedly, Wayfair is not doing well. Last week, investors hoping for a rate cut were dealt another blow when the latest report showed high inflation. This will keep shoppers away from big, expensive items like furniture and home furnishings.

Wayfair said the entire home furnishings category has struggled over the past nine quarters, with double-digit percentage declines in each of the past six quarters.Wayfair's fourth-quarter net revenue per active customer declined 4% year-over-year, and the average order value fell to $276 from $283 in the fourth quarter of 2022, Wayfair said.

For the first quarter of 2024, Koon said in the March quarterly report that these key metrics would again be on a downward trend. Gross margins are expected to stabilize at 30% to 31%, with Koon promising a "substantial" increase in full-year adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).

Niraj Shah, the company's chief executive officer, emphasized repeatedly on the fourth-quarter conference call that Wayfair is focusing on what it can control. It can't control the furniture market, which is expected to remain depressed, with inflation, high interest rates and the real estate market all remaining high. The industry as a whole is also unlikely to see a jump in revenue anytime soon.

What Wayfair can do is focus on improving its rates and preparing for replication. It has made several layoffs and reorganized its business from the bottom up.

There are a lot of risks here. In the past, Wayfair has not been able to expand without losing cash and becoming an unnecessarily bloated organization. Long-term investors need to believe that Wayfair will do well if given another chance.

For most investors, it's probably too early to risk buying shares of Wayfair. However, if you're risk-averse, you may want to take a small position to profit from compounding.

Should you invest $1,000 in Wayfair right now?

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John Mackey, former Chief Executive Officer of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's Board of Directors.Jennifer Saibil does not own any of the above stocks.The Motley Fool's holdings recommend Amazon.com.The Motley Fool recommends Wayfair.The Motley Fool has a disclosure policy. The Motley Fool has a disclosure policy.

Half a dozen Wall Street analysts think this beaten-down stock is now a buy, and one sees upside in 60% was originally published by The Motley Fool.