Is Wayfair (W) Stock A Buy or Sell?

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In this article you are going to find out whether hedge funds think Wayfair Inc (NYSE:W) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is W stock a buy or sell? Hedge fund interest in Wayfair Inc (NYSE:W) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that W isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). At the end of this article we will also compare W to other stocks including Etsy Inc (NASDAQ:ETSY), AvalonBay Communities Inc (NYSE:AVB), and China Telecom Corporation Limited (NYSE:CHA) to get a better sense of its popularity.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Overdeck of Two Sigma Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to check out the fresh hedge fund action regarding Wayfair Inc (NYSE:W).

Do Hedge Funds Think W Is A Good Stock To Buy Now?

At the end of the fourth quarter, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the third quarter of 2020. On the other hand, there were a total of 33 hedge funds with a bullish position in W a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Wayfair Inc (NYSE:W) was held by Spruce House Investment Management, which reported holding $1083.9 million worth of stock at the end of December. It was followed by Bares Capital Management with a $584 million position. Other investors bullish on the company included D E Shaw, Two Sigma Advisors, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Spruce House Investment Management allocated the biggest weight to Wayfair Inc (NYSE:W), around 33.17% of its 13F portfolio. Bares Capital Management is also relatively very bullish on the stock, setting aside 10.8 percent of its 13F equity portfolio to W.

Judging by the fact that Wayfair Inc (NYSE:W) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there exists a select few hedge funds who sold off their full holdings in the fourth quarter. Intriguingly, Alex Sacerdote’s Whale Rock Capital Management cut the largest stake of the 750 funds monitored by Insider Monkey, worth about $436.6 million in stock, and Xiuping Li’s Opti Capital Management was right behind this move, as the fund sold off about $41.5 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Wayfair Inc (NYSE:W) but similarly valued. We will take a look at Etsy Inc (NASDAQ:ETSY), AvalonBay Communities Inc (NYSE:AVB), China Telecom Corporation Limited (NYSE:CHA), Enphase Energy Inc (NASDAQ:ENPH), Equity Residential (NYSE:EQR), Arista Networks Inc (NYSE:ANET), and Nokia Corporation (NYSE:NOK). This group of stocks’ market caps match W’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ETSY 56 1963085 5
AVB 32 864498 3
CHA 5 19901 2
ENPH 48 988127 6
EQR 28 557427 1
ANET 35 396873 8
NOK 19 186378 -2
Average 31.9 710898 3.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.9 hedge funds with bullish positions and the average amount invested in these stocks was $711 million. That figure was $2845 million in W’s case. Etsy Inc (NASDAQ:ETSY) is the most popular stock in this table. On the other hand China Telecom Corporation Limited (NYSE:CHA) is the least popular one with only 5 bullish hedge fund positions. Wayfair Inc (NYSE:W) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for W is 68.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. Hedge funds were also right about betting on W as the stock returned 48.5% since the end of Q4 (through 3/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.