Over the past six months, Etsy has been a great trade, beating the S&P 500 by 24%. Its stock price has climbed to $71.62, representing a healthy 33.2% increase. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in Etsy, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Etsy Not Exciting?
We’re glad investors have benefited from the price increase, but we’re sitting this one out for now. Here are three reasons why ETSY doesn’t excite us, plus one stock we’d rather own.
1. Declining Active Buyers Reflect Product Weakness
As an online marketplace, Etsy generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.
Etsy struggled with new customer acquisition over the last two years as its active buyers have declined by 1.7% annually. This performance isn’t ideal because internet usage is secular, meaning there are typically unaddressed market opportunities. If Etsy wants to accelerate growth, it likely needs to enhance the appeal of its current offerings or innovate with new products.
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Etsy’s revenue to drop by 2.3%. This projection is underwhelming and suggests its products and services will face some demand challenges.
3. EPS Growth Has Stalled
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Etsy’s flat EPS over the last three years was below its 2.9% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Etsy’s business quality ultimately falls short of our standards. With its shares outperforming the market lately, the stock trades at 12.4× forward EV/EBITDA (or $71.62 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better opportunities elsewhere. We’d suggest looking at one of our top software and edge computing picks.
Stocks We Like More Than Etsy
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