Few winners of the epidemic have been hit this hard Wayfair (W 4.43%). Shares of the online home furnishings leader fell in 2022 and have been on the decline ever since, as revenue growth has been negative in nearly every quarter since mid-2021.

In its third-quarter earnings report, the company said its revenue fell 2% annually to $2.9 billion, leaving it unprofitable under generally accepted accounting principles (GAAP) with a loss of 74 million dollars. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were reported at $119 million, and the company said its primary goal was to deliver adjusted EBITDA above stock-based compensation and capital expenditures.

Even though Wayfair missed the bull market of the last two years, it may be time for the stock to finally rebound. Let’s take a look at a few reasons why.

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Macro conditions adjusted to improve

Wayfair is not alone in its struggle among home furnishings retailers. The sector has remained weak amid a broader slowdown in the housing market due to high mortgage rates.

Peers liked it Right And Williams-Sonoma has posted revenue declines in recent quarters and comparable sales have fallen for the home improvement retail giants Home Depot And Lowe’s. However, a few potential headwinds could help Wayfair and its home furnishings peers benefit in 2025.

First, the federal funds rate will continue to fall. The central bank cut interest rates by 50 basis points in September and is expected to cut them further this year and in 2025. This will lower mortgage rates, helping to trigger a rebound in home buying activity as existing home sales remain at around 40%. below pre-pandemic levels. Such a turnaround in the real estate market should also benefit industry stocks like Wayfair as people furnish their new homes.

Additionally, there is a clearly documented housing shortage in the country, with millions of homes needed across the country. The next administration in the White House, no matter who wins, has vowed to address the lack of affordable housing in the U.S. Political moves to encourage new home construction could also give Wayfair a long-term boost.

What does Wayfair do?

Wayfair is not standing still during these challenging times. The company has eased its way through the crisis to prepare for the recovery by making several layoffs, including one it announced last week.

It also hoped to capitalize on the same dynamics by launching a new $29 annual rewards program. Amazon Prime is very successful. Wayfair Rewards will offer free shipping and 5% back on purchases.

There is room for improvement

Not only is Wayfair down nearly 90% from its pandemic-era peak, but the stock’s recovery potential could be quite high if sales growth begins to accelerate and profitability improves. The stock is trading at a price-to-sales ratio of just 0.4; This is a bargain price for one of the leading players in e-commerce. That figure could easily double or triple as the stock recovers. The stock is also trading at a forward price-to-earnings (P/E) ratio of 30, based on analysts’ consensus for earnings per share of $1.34 next year.

It may take some cautious optimism to see Wayfair’s recovery take shape next year after another disappointing earnings report, but the housing market will recover eventually. When this happens, Wayfair needs to be ready to leverage capital.