Beware of These 2 Downgraded Retail Stocks

The COVID-19 pandemic-induced limitations caused industry shutdowns worldwide last year. But as constraints eased this year with solid progress on the vaccination front, an unexpected increase in demand has wreaked havoc on…

manufacturers and distributors, whose production now lags pre-pandemic levels for several reasons, including labor shortages, and supply chain disruptions.

Supply chain bottlenecks and production system blockages have negatively impacted several industries, leading to panic overordering by retailers and manufacturers, exacerbating the supply chain crisis.

Wayfair Inc. (W – Get Rating) and Bed Bath and Beyond (BBBY – Get Rating) are among the retail giants whose shares have tanked on the ongoing supply chain disruptions because investors expect their financials to be impacted in the near term. Analysts have recently downgraded these stocks. Hence, we think these stocks are best avoided now.

Wayfair Inc. (W – Get Rating)

W operates an e-commerce company in the United States and internationally. The Boston, Mass.-based company offers furniture, decor, housewares, and home renovation goods under the Wayfair, Joss & Main, AllModern, Birch Lane, and Perigold brands through its websites. The stock was recently downgraded to ‘Hold’ from ‘Buy’ by Jefferies analyst Jonathan Matuszewski.

For the second quarter, ended June 30, 2021, W’s net revenue declined 10.4% year-over-year to $3.86 billion. Its operating income decreased 51.6% from its year-ago value to $145.21 million. The company’s net income declined 52.4% from the prior-year quarter to $130.43 million, while its EPS came in at $1.14 over this period.

W’s EPS is expected to decline 33.9% in the current year. The stock has fallen 17% in price over the past year and 13% over the past month.

In terms of forward non-GAAP P/E, W is currently trading at 71.37x, which is 392.3% higher than the 14.50x industry average. Also, in terms of its forward EV/Sales, the stock is currently trading at 1.84x, which is 27.5% higher than the 1.44x industry average.

W’s POWR ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

W is rated a…

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