Below is a note written by CEO Keith McCullough on why we're adding Wayfair (W) to the short side of Investing Ideas today:
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Wow what a squeeze in Wayfair (W). Do you buy it or sell it up here? Here's how Retail analyst Brian McGough wrote about last week's move to our Institutional Research subscribers: "Should the stock be up near 30% on this result? It’s easy for me to defensively and emotionally say ‘absolutely not’. But let’s simply look at it a different and more pragmatic way. Today Wayfair’s Market cap is up by about $3.1bn. That is – almost to the penny – RH’s ENTIRE market value. RH is a real company, with a real strategy, a limited competitive set, and is very profitably and consistently capturing more incremental EBIT dollars in Home Furnishings at a better cash on cash return than anyone in the space. That’s a strategy with a good 10-year runway. Wayfair, on the other hand, is spending heavily against a strategy to grow at the commodity-end of the market to sell goods close enough to cost that would require the company to enter cost cutting mode – hence destroying the growth profile – to ever earn a profit. And while it does so, it’s attracting everyone from WMT, to TGT, AMZN, IKEA and all the other bottom feeders that can leverage a real Brick & Mortar infrastructure to compete profitably against Wayfair." We say sell it on green, KM |
