Why Wayfair shares plummeted 24% in October

Shares of Honestly (NYSE:W) fell last month after the online home furnishings retailer was plagued by rising interest rates and weak earnings in early November.

Wayfair has struggled since the pandemic-era boom as Americans have sharply cut back on spending on their homes due to high interest rates and the lock-in effect of low mortgage rates during the pandemic, which has driven existing home sales to their lowest point in nearly three decades.

Against that backdrop, Wayfair fell another 24% last October, according to data from S&P global market information.

As you can see in the chart below, most of the stock losses occurred in the second half of the month. You can also see the rises in 10-year Treasury yields during the month, which put pressure on Wayfair stock.

W data Ygraphs.

Wayfair’s battle continues

Investors in home improvement stocks like Wayfair have been patiently waiting for a recovery in the housing market, but after the Federal Reserve cut the fed funds rate by 50 basis points in September, investors expected rates to fall. Instead, the opposite happened, and higher mortgage rates, which are closely linked to government bond yields, dampened hopes for a housing recovery.

Wayfair did receive a buy rating from Needham, which restored coverage on the stock with a $60 price target, as the analyst expects the housing market recovery to provide tailwinds in 2025.

Later in the month, Piper Sandler lowered its price target on Wayfair from $67 to $63 as industry checks showed weakening demand in September and October, as well as advertising pressure from political ads. Piper Sandler maintained its overweight rating on the stock.

Image source: Getty Images.

Wayfair is missing the profit margin

Wayfair continued to slump in November as its stock fell 6% from its third-quarter earnings report on November 1.

The company reported another round of declining revenue, which fell 2% to $2.88 billion, matching estimates, while adjusted earnings per share improved from $0.13 to $0.22, beating estimates from $0. 15. It also predicts another sales decline in the fourth quarter.

Finally, the stock fell again on Wednesday after Trump was elected, as Treasury yields shot up on the news, which investors saw as a loss for home improvement retailers like Wayfair.

If the housing market continues to tank, Wayfair will likely continue to struggle.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Wayfair. The Motley Fool has one disclosure policy.