Wayfair (NYSE:W) shareholders are still up 257% over 5 years despite pulling back 9.6% in the past week

Some Wayfair Inc. (NYSE:W) shareholders are probably rather concerned to see the share price fall 39% over the last three months. But that scarcely detracts from the really solid long term returns generated by the company over five years. In fact, the share price is 257% higher today. Generally speaking the long term returns will give you a better idea of business quality than short periods can. Of course, that doesn't necessarily mean it's cheap now.

While the stock has fallen 9.6% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

Check out our latest analysis for Wayfair

We don't think that Wayfair's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

In the last 5 years Wayfair saw its revenue grow at 32% per year. Even measured against other revenue-focussed companies, that's a good result. So it's not entirely surprising that the share price reflected this performance by increasing at a rate of 29% per year, in that time. This suggests the market has well and truly recognized the progress the business has made. Wayfair seems like a high growth stock - so growth investors might want to add it to their watchlist.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. If you are thinking of buying or selling Wayfair stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

Wayfair shareholders are down 49% for the year, but the market itself is up 5.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 29% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - Wayfair has 4 warning signs (and 2 which make us uncomfortable) we think you should know about.

Wayfair is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.