MarketWatch First Take: Wayfair added to ‘zombie’ stocks list by equity research firm New Constructs


Online furniture retailer Wayfair Inc. has been added to the list of “zombie” stocks compiled by independent equity research firm New Constructs.

The research firm, which uses machine learning and natural language processing to parse corporate filings and model economic earnings, warns there are tough times ahead for Wayfair

“Companies that inherently struggle to produce real cash flows, like Wayfair, are at risk of their stock price going to $0,” wrote New Constructs CEO David Trainer, in a note.

Since New Constructs put Wayfair in its “Danger Zone” in March 2015, the stock has outperformed the S&P 500 index

as a short by 67%, according to the equity research firm. “Even after falling 78% year-to-date and 42% since our last update in August 2022, we think the stock has further to fall,” Trainer wrote. “In the current environment, investors are searching for real cash flows, strong balance sheets, and sustainable profits. Wayfair has none of these.”

See Now: Wayfair shares dip as loss widens

Now that COVID-induced demand has subsided, Wayfair’s business has resumed burning cash, according to New Constructs, which says that the retailer has burned through $4.1 billion in Free Cash Flow, excluding acquisitions, since 2013. “The burn rate is getting worse,” wrote Trainer. The New Constructs CEO added that Wayfair burned through $1.3 billion in FCF excluding acquisitions over the trailing-twelve-months through the third quarter of 2022, compared to $214 million in the trailing 12 months through the third quarter of 2021.

In August Wayfair announced plans to lay off about 870 employees, or about 5% of its global workforce, sending the company’s stock sliding more than 20%.

Earlier this month, when Wayfair announced its third-quarter results, Chief Executive Niraj Shah said the company is on track to deliver more than $500 million in cost savings in 2023. “However, we are not stopping there and have identified meaningful incremental efficiency opportunities, which we are also actioning as we speak,” he added, in a statement.

Wayfair ended the third quarter with $1.3 billion of cash.

See Now: Wayfair CEO says, ‘I take responsibility’ for layoffs, as stock slides 20%

Other companies on New Constructs’ zombie stocks list include Affirm Holdings Inc.
AMC Entertainment Holdings Inc.
GameStop Corp.
 Snap Inc.
 Rivian Automotive Inc.
  Robinhood Markets Inc.
  Carvana Co.
Freshpet Inc.
  Peloton Interactive Inc.
 Beyond Meat Inc.
Chewy Inc.
DoorDash Inc.
Uber Technologies Inc.
 Shake Shack Inc.
Tilray Brands Inc.
RingCentral Inc.
Blue Apron Holdings Inc.
SunRun Inc.
and Allbirds Inc.

Wayfair’s stock climbed 3.7% on Tuesday, outpacing the S&P 500 index’s rise of 1.7%.

Of 33 analysts surveyed by FactSet, 10 have a buy rating, 15 have a hold rating and eight have an underweight or sell rating for Wayfair.

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