Wayfair (W) Shares Skyrocket, What You Need To Know

What Happened:

Shares of online home goods retailer Wayfair (NYSE: W) jumped 5.8% in the afternoon session after major indices soared as yields declined after the Bureau of Labour Statistics reported CPI (Consumer Price Index - a gauge of the average price consumers pay for goods and services) for the month of May 2024 came in better than expected at 3.3% year on year (versus analysts' expectations for 3.4%). The data also revealed that inflation was flat (unchanged) month on month. The inflation results benefitted from a 2% decline in the energy index, while shelter inflation remained sticky (up 0.4% m/m and 5.4% y/y). 

Sticky inflation is exactly what has delayed the Fed's planned rate cuts in 2024, with some market participants likely worried that inflation might stay higher for longer. Today's report eased those worries a bit. 

Separately, the Federal Open Market Committee kept interest rates at 5.25% to 5.50% following its June 2024 monetary policy meeting while also projecting no more than one rate cut in the second half of the year. The committee noted in its post-meeting statement that, "In recent months, there has been modest further progress toward the Committee's 2 percent inflation objective." The dovish comment suggests the Fed is moving closer to its goal of bringing inflation back to the 2% target. 

As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.

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What is the market telling us:

Wayfair's shares are very volatile and over the last year have had 50 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was about a month ago, when the stock gained 18.6% on the news that the company reported first quarter results that beat analysts' revenue and adjusted EBITDA expectations. Q2 guidance, which was given on the earnings call, was also comforting as it was lin line to slightly above expectations. Specifically, Wayfair expects Q2 revenue to be flat to slightly up year on year compared to Q2 last year, in line with expectations. Adjusted EBITDA margin in Q2 is expected to be in the mid-single digit percentage range, which leaves some room for the company to exceed current expectations. On the other hand, its revenue growth slowed. Overall, this was a solid quarter for Wayfair.

Wayfair is up 1.9% since the beginning of the year, but at $59.83 per share it is still trading 29.3% below its 52-week high of $84.67 from August 2023. Investors who bought $1,000 worth of Wayfair's shares 5 years ago would now be looking at an investment worth $376.87.

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