Like most other companies during the early stages of the pandemic, Etsy (ETSY) warned the virus was dramatically disrupting business trends. Now, with a recovery that began late in the second quarter and continued with its third-quarter earnings, is Etsy stock a buy?
In the first week of March, Etsy saw “a significant drop in traffic,” as consumers were whipsawed by the unfolding pandemic and how to respond. But there was a surprise in store. What consumers narrowed in on was the need for masks, which were nearly impossible to get.
Etsy provides an online e-commerce platform where creators of arts and crafts, vintage items and other unique goods go to sell their products.
As public health officials encouraged Americans to wear fabric face masks, that became Etsy’s moment of opportunity. The company witnessed a tremendous surge of demand for hand-made artisan face masks. The result? Etsy sold about $133 million worth of fabric face masks, about 12 million of them in the month of April.
That trend continued when Etsy reported second-quarter earnings on Aug. 5. Etsy sold $346 million worth of masks. Importantly, non-mask sales grew 93% in the quarter.
Then, on Oct. 28, Etsy reported third quarter results also well above estimates.
One Of The Best Business Models
D.A. Davidson analyst Tom Forte says Etsy has one of the best business models he’s seen. It has outmaneuvered eBay (EBAY), avoided the Amazon (AMZN) crush, and dodged competition from Overstock.com (OSTK) and Wayfair (W).
That’s partly due to the company’s ability to shift gears fast, like it did with masks. Its stable of artistic creators who sell on Etsy also help by producing unique, one-of-a-kind products. They can also step in to take advantage of opportunities, such as the mask shortage.
“The sellers give Etsy a huge strategic advantage, which is something they will carry into the holidays,” said Forte, who has a buy rating on Etsy stock and price target of 160.
Etsy Conducts Its IPO
The company held its initial public offering in April 2015, pricing shares at 16 and raising $267 million. Etsy stock popped 72% on its first day of trading. But it was downhill from there as Etsy stock gradually dropped to its all-time low of 6.04 over the next nine months. After that, Etsy stock went on a growth spurt, based on a string of better-than-expected earnings reports and management reshuffling.
Just before the Covid-19 pandemic began to shake the rafters on Wall Street, Etsy stock hit a seven-month high of 63.24 on March 4. From that point, it plunged 52% to a low of 29.95, as stock markets plunged globally. Etsy stock has recovered sharply since then.
Among previous improvements made by the company, Etsy changed its advertising platform. It made meaningful strides in search and discovery by making the homepage more personalized and dynamic. It also made progress improving its mobile app and transferred computing operations to the cloud.
Etsy Stock Fundamental Analysis
The improvements made a difference. When it reported third-quarter results on Oct. 28, Etsy reported a 128% leap in revenue to $451 million, well above Wall Street estimates of $412.7 million. Adjusted earnings came in at 70 cents, vs. estimates of 57 cents. In addition, gross merchandise sales jumped 119% to $2.6 billion.
For the fourth quarter, analysts expect adjusted earnings of 58 cents, up 132%. That would be the third-straight quarter of triple-digit growth. The consensus on revenue is $505 million, up 87%, but a slowdown from 128% growth in the prior quarter.
It ended the quarter with 69.6 million active buyers, up 55%. It had 3.7 million active sellers, up 42%.
“Consumer shopping habits have been greatly influenced by the events of 2020, and Etsy truly stands for something different,” said Chief Executive Josh Silverman, in comments to analysts after the earnings report. “We’ve been able to sustain growth by driving retention and frequency of our existing buyers as well as becoming an important shopping destination for new buyers.”
Etsy Stock Technical Analysis: Is It A Buy Right Now?
A technical analysis of Etsy stock is a key component of determining whether it’s worth buying.
The IBD Stock Checkup Tool shows that Etsy has an IBD Composite Rating of 99 out of a best-possible 99, meaning the stock currently tops 99% of all other stocks in terms of key performance metrics and technical strength. The best stocks will often rate 98 or 99 at the time they launch a big price run.
Its Relative Strength Rating is 97. The rating tracks market leadership by showing how a stock’s price movement over the past 52 weeks measures up against that of all other stocks in IBD’s database. The best stocks will often rate over 90 at the time they launch a big price run.
Etsy has an Accumulation/Distribution Rating of B+. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. A grade of A signals heavy institutional buying. The lowest rating of E means heavy selling. Think of the C grade as neutral.
Etsy stock is currently not a buy. The most recent buy point was a breakout from a cup base on Nov. 27, according to Leaderboard analysis. The buy point was 154.98 and extended to 162.73. From that point Etsy stock climbed steadily to a record high of 198.50 on Dec. 22, notching new all-time highs for five weeks in a row. Shares have pulled back since that high, by about 8%.
Etsy Holds Top Spot In Internet Group
Etsy is currently the No. 1 rated stock on the IBD 50 list. It’s also the No. 1 rated stock in IBD’s Retail-Internet industry group. Amazon is rated No. 9. Is Amazon stock a buy? Alibaba (BABA) is No. 21. Is Alibaba stock a buy?
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Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
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