Wayfair Inc. (NYSE:W) shareholders have seen the share price descend 17% over the month. But that doesn’t change the fact that the returns over the last three years have been very strong. In three years the stock price has launched 234% higher: a great result. After a run like that some may not be surprised to see prices moderate. The thing to consider is whether the underlying business is doing well enough to support the current price.
Wayfair isn’t a profitable company, so it is unlikely we’ll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That’s because it’s hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
In the last 3 years Wayfair saw its revenue grow at 34% per year. That’s well above most pre-profit companies. Along the way, the share price gained 50% per year, a solid pop by our standards. This suggests the market has recognized the progress the business has made, at least to a significant degree. That’s not to say we think the share price is too high. In fact, it might be worth keeping an eye on this one.
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. So it makes a lot of sense to check out what analysts think Wayfair will earn in the future (free profit forecasts).
A Different Perspective
It’s nice to see that Wayfair shareholders have gained 4.7% (in total) over the last year. That falls short of the 50% it has made, for shareholders, each year, over three years. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
Wayfair is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.