Rise for DIY Dreams: Is Wayfair Making a Comeback?

December traditionally marks the time for investors to consider stocks from underperforming sectors for the coming year. The real estate market is sending initial positive signals: pending home sales increased by 2% in October compared to the previous month, according to the National Association of Realtors. This increase marked the third consecutive month of growth. A recovery in the housing sector could prove to be a boon for Wayfair, whose stock price has dropped nearly 85% since its peak in 2021. The company achieved yearly sales growth in the high double digits until 2020. After an initial boom at the start of the pandemic, sales slowed down, influenced by a more challenging economic environment with rising interest rates and inflation. A glimmer of hope is the recently stabilized sales. Since the Federal Reserve's pivot, which cut its key interest rate by 50 basis points in September and 25 basis points in November, consumers could see some relief in the near future. Wayfair itself recorded a slight 2% year-over-year sales decline in the third quarter, but shows signs of stabilization at around $2.8 billion, significantly above the 2019 level. Wayfair benefits from a dedicated customer base: about 10 million of its 21 million active customers shop regularly. A flourishing real estate market could help the company increase this number further and return to a growth trajectory. In addition, Wayfair has successfully optimized its cost management. The free cash flow, which had dwindled due to reduced sales, peaked at $1.5 billion in Q1 2021 before falling to negative $1.1 billion in Q4 2023. However, management has since managed to improve cash flow development beyond the break-even point, recently achieving $43 million.