Shares of online home goods retailer Wayfair (NYSE: W) fell 8.27% in the morning session after stocks tumbled across the major indices in response to rising yields. The 10-year Treasury yield rose to 4.75%, the highest since 2007. The 2-year Treasury yield also increased to 5.12%. Higher rates have a negative impact on equity valuations, as today's stock price is the present value of future cash flows discounted at a discount rate. The higher the prevailing interest rate environment, the higher that discount rate. In addition, higher rates particularly hurt higher-growth stocks such as tech names since investors must discount financials further out in the future back to the present. The Fed kept rates unchanged at a range of 5.25% to 5.50% during the September 2023 FOMC (Federal Open Market Committee) meeting. The committee expects rates to be higher for longer based on their assessment of current economic conditions and reiterated the commitment to bringing inflation back down to the two percent goal.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Wayfair? Access our full analysis report here, it's free.
What is the market telling us:
Wayfair's shares are very volatile and over the last year have had 70 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 five months ago, when the stock gained 18.1% on the news that the company reported first-quarter results that exceeded analysts' revenue and earnings per share (EPS) expectations. Active customers also came in above estimates. The company nearly broke even on adjusted EBITDA, with management expecting to have positive Adjusted EBITDA in the second quarter. Improving profitability is a welcome dynamic for the stock. Overall, it was a strong quarter.
Wayfair is up 76.1% since the beginning of the year, but at $57.66 per share it is still trading 31.9% 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 $417.58.
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