Etsy, Inc. (ETSY) in Brooklyn, N.Y., operates two-sided online marketplaces that connect buyers and sellers. It recently launched Etsy Purchase Protection, which should help buyers feel more confident when they shop from small businesses on its portal. The company also raised the transaction fee for sellers on the platform by 30%.
However, the stock has declined 19.5% in price over the past month and 65% over the past six months to close Friday’s trading session at $80.98
ETSY provided unimpressive second-quarter guidance; its $540 - $590 million in revenue and gross merchandise sales of $2.90 - $3.20 billion compare with consensus estimates of $627 million and $3.37 billion, respectively. In addition, it is currently trading 73.7% below its 52-week high of $307.75, which it hit on Nov. 26, 2021. Also, it is currently trading below its 50-day and 200-day moving averages of $101.88 and $176.65, respectively, indicating a downtrend. So, ETSY’s near-term prospects look bleak.
Here is what could influence ETSY’s performance in the coming months:
Top-line Growth Does not Translate into Bottom-line Improvement
ETSY’s revenue increased 5.2% year-over-year to $579.27 million for its fiscal first quarter, ended March 31, 2022. The company’s adjusted EBITDA declined 13.5% year-over-year to $159.20 million, while its net income decreased 40.1% year-over-year to $86.11 million. Also, its total assets came in at $3.75 billion for the period ended March 31, 2022, compared to $3.83 billion for the period ended Dec. 31, 2021.
Low Profitability
In terms of trailing-12-month CAPEX/Sales, ETSY’s 0.67% is 76.9% lower than the 2.91% industry average. And its 0.76% trailing-12-month asset turnover ratio is 26.7% lower than the 1.03% industry average.
Stretched Valuation
In terms of forward P/S, ETSY’s 4.02x is 344.7% higher than the 0.91x industry average. And its 4.57x forward EV/S is 313.2% higher than the 1.11x industry average. Furthermore, the stock’s forward P/B of 7.19x is 188.7% higher than the 2.49x industry average.
POWR Ratings Reflect Bleak Prospects
ETSY has an overall D rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. ETSY has a D grade for Growth and Sentiment. This is justified because analysts expect its EPS to decline 38.2% in the current quarter, 17.7% next quarter, and 25.3% in the current year.
The stock has a D grade for Stability, which is consistent with its 1.75 beta. In addition, ETSY has a D grade for Value, which is in sync with its higher-than-industry valuation ratios.
ETSY is ranked #51 out of 69 stocks in the F-rated Internet industry. Click here to access ETSY’s ratings for Momentum and Quality.
Bottom Line
ETSY could keep losing in the near term due to concerns over high inflation and supply chain disruptions. Because the stock looks overvalued at the current price level, we think it is best to avoid it now.
How Does Etsy, Inc. (ETSY) Stack Up Against its Peers?
While ETSY has an overall POWR Rating of D, one might want to consider investing in the following Internet stocks with an A (Strong Buy) or B (Buy) rating: Yelp Inc. (YELP), trivago N.V. (TRVG), and Travelzoo (TZOO).
Note that TRVG and TZOO are two of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.
Click here to checkout our Retail Industry Report for 2022
ETSY shares were trading at $83.98 per share on Monday afternoon, up $3.00 (+3.70%). Year-to-date, ETSY has declined -61.64%, versus a -12.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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