Will Wayfair Stock Rebound After Last Week’s Decline?

Wayfair (NYSE: W), an e-commerce company that sells furniture and home goods, has seen its stock decline by over 4% over the last week (five trading days), underperforming the S&P 500 which is down by about 1% over the same period. Although the stock has been a stellar performer this year, rising by almost 30% year-to-date, driven by a strong housing market, the sheltering in place trend, and an increasing willingness for customers to buy home goods online, the recent sell-off is likely driven by the U.S. Federal Reserves indication that it would begin to raise interest rates a little sooner than expected. So will Wayfair stock continue to decline in the coming weeks and months, or is a rebound looking more likely?

According to the Trefis Machine Learning Engine, which identifies trends in a company’s historical stock price data, returns for Wayfair stock average a little over 7% in the next month (21 trading days) after experiencing a 4% decline over the last five trading days. The stock is also likely to outperform the broader markets over the next month, with an expected return that would be 6.6% higher compared to the S&P 500.

But how would these numbers change if you are interested in holding W stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning to test W stock chances of a rise after a fall and vice-versa. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!

MACHINE LEARNING ENGINE – Try it yourself

IF W stock moved by -5% over 5 trading days, THEN over the next 21 trading days then W stock moves an average of 7%, with a 56.9% probability of a positive return over this period.

Also, given a -5% movement for the stock over 5 trading days, it has historically witnessed an excess return of 6.5% compared to the S&P500 over the next 21 trading days, with a 52.9% percent probability of a positive excess return.

Some Fun Scenarios, FAQs & Making Sense of Wayfair Stock Movements:

Question 1: Is the average return for Wayfair stock higher after a drop?

Answer:

Consider two situations,

Case 1: Wayfair stock drops by -5% or more in a week

Case 2: Wayfair stock rises by 5% or more in a week

Is the average return for Wayfair stock higher over the subsequent month after Case 1 or Case 2?

W stock fares better after Case 2, with an average return of 7% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 8.3% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Wayfair stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer:

If you buy and hold Wayfair stock, the expectation is over time the near-term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For W stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

Question 3: What about the average return after a rise if you wait for a while?

Answer:

The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although W stock appears to be an exception to this general observation.

W’s returns over the next N days after a 5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

Want to benefit from rising inflation and the Fed’s revised stance on interest rate increases? Check out our theme on Stocks To Play Rising Inflation

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