Wayfair (NYSE: W) is not the first thing that comes to mind when you think of human trafficking. Thus, when a Wayfair child trafficking conspiracy arises, it turns the online business and investment world on its head. Conspiracy stories often contain competing narratives that cause investors to become confused as to what to believe. The speculation is making investors scratch their heads about whether the drop represents a discount or an alarm bell. Thus, today YIG will breakdown the conspiracy and provide investors with the information to make an excellent financial decision.
Table of contents 1. Breakdown of Wayfair's scandal 2. Wayfair COVID-19 future. 3. Does YIG see potential in Wayfair?
Wayfair scandal breakdown
It all started when a Reddit user PrincessPeach1987 asked, “is it possible Wayfair is involved in Human Trafficking with their WFX Utility collection, or are just extremely overpriced?”
Is it possible Wayfair involved in Human trafficking with their WFX Utility collection? Or are these just extremely overpriced cabinets? (Note the names of the cabinets) this makes me sick to my stomach if it’s true 🙁 from conspiracy
The conspiracy holds three parts: the price, the names on the cabinets, and the link to other products.
First, paying upwards of 10,000 for a cabinet might seem ridiculous compared to that of Bunnings or IKEA. Hence, people began to back the narrative that Wayfair is charging an excessive amount of money to front the trafficking of children. In light of the comments, Wayfair removed the cabinets from the site. Ultimately adding fuel to the fire. However, Wayfair has since released a statement denying the allegations. At this point is it worth mentioning that Wayfair, runs off the dropship model. Wayfair did not manufacture the cabinet nor select the price. They are simply selling it on the suppliers behalf.
"There is, of course, no truth to these claims. The products in question are industrial-grade cabinets that are accurately priced. … The supplier did not adequately explain the high price point [and] we have temporarily removed the products from site…"
— Audrey Conklin (@audpants) July 10, 2020
Second, some of the cabinet names match the names of missing children. For example, “Neriah”, “Yaritza”, “Samiyah” and “Alyvia”. The alleged name link saw users dig further into the Wayfair website, bring us to the third reason. Within moments other uses began posting pictures of more ridiculous price tags. For example, a $10,000 pillow. Adding even more fuel to the Wayfair trafficking ring fire. Wayfair responded to the follow-up accusations by stating it was a glitch, and the team is working on fixing the technical issue.
All in all, everything at this current moment remains alleged. It would be unreasonable to base the entire conspiracy off what appears to be a social media hunch. Investors should wait for more substantive evidence before using the news to invest. If the conspiracy subsides over the coming days that should signal, that is all it was, a conspiracy.
How does the future look for Wayfair?
Putting the scandal aside, Wayfair should weather the COVID-19 storm. Because the business model is 100% digital. Yes, they rely on suppliers who could be impacted by COVID-19 supply chain disruptions. However, their 800% rise in 3 months suggests the company is immune to COVID-19.
Also, we should Wayfair grow financially and operationally in these uncertain times. Because businesses who are suffering from selling their product via physical stores might approach Wayfair to sell their products online. Wayfair’s digital business model should also see investors and financial institutions invest in the company as it appears “safe”. An increase in market cap and institutional funding should allow Wayfair to expand the business and increase earnings. Thus, creating a snowball growth effect. Overall, if the Conspiracy dies out, then yesterday’s dip will likely be a speed bump in a long upward ride.
Does YIG see potential in a Wayfair Investment?
Before I start I am obliged to remind our viewers that this is not financial advice but rather my extensive research on the topic.
Short answer: Investing in Wayfair for the long term holds more potential. However, investors must understand the risks of each strategy before investing. (opinion not advice)
Scandal discount opportunity
Considering the optimistic outlook for Wayfair, some investors might think the current price is a bargain. If the conspiracy proves to be false then YIG shares the same viewpoint. Also, even if the scandal is true, Wayfair will likely rise in the long-term. Because Wayfair, much like Kogan, is becoming a haven in these turbulent times. Thus, even if the drop shipping giant falls on positive conspiracy news, investors will likely flood the markets. The scandal-rebound theory tends to hold.
For example, Westpac was put under the legal spotlight for terrorism funding, trafficking, and money laundering allegations in 2019. The allegations were true and Westpac fell 12%. However, the capitulation (extreme selling) left only buyers to drive up the price. Consequently, Westpac rose 6% until COVID began. YIG wishes to point out the scandal-rebound theory not to discredit the possible allegations but to show our viewers the deeper trading psychology at play.
However, if the conspiracy is found to be true then the stock price could dip significantly. Ultimately, reducing the chance of making a short-term gain.(opinion not advice) Especially as news stock trading algorithms react solely to price-sensitive events.
Wayfair options – shorting or going with the tide?
Investors who believe the conspiracy may wish short, go against the bulls. You could do this by either buying a put option or selling a call option. However, if you go down this road, you must expect the share price to drop. Considering, the allegations have not amounted to anything as of yet, you would be basing your investment off speculation. Speculative option investments are extremely risky.(opinion not advice) Because if you are wrong your losses could be infinite when selling a call option, and you would be throwing away money on put option premiums. Not to mention that Wayfair has an bullish future. Further, stacking the odds against you. Alternatively, you could sell put options, in which you receive premiums. Ultimately benefitting off investors who are bearish on Wayfair. (opinion not advice)
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin, Senior Manager of YIG.