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The online retailer Etsy (ETSY) may be turning the corner as one of the worst-performing stocks in the S&P 500 Stock Index ($SPX) (SPY). Etsy was the second-weakest performer in the S&P 500 since the end of 2021, losing more than two-thirds of its value over the past 21 months. However, Etsy is now seeing a record number of analyst buy ratings, and the average price target forecast for the stock implies a +70% gain from current levels.
Shares of Etsy dropped to a 3-1/2 year low Tuesday, but some analysts believe the stock is poised for a rebound. Wolfe Research last week raised its recommendation on the stock to outperform, and Huntington Private Bank said, “Etsy may provide a pretty attractive entry point, and we’re starting to increasingly feel like the next driver of growth is going to be diversification in your portfolio, and maybe beefing up some of those bets on underperforming stocks.”
Etsy soared during the Covid-19 pandemic when homebound shoppers were forced to do most of their retail buying online. In late 2021, Etsy hit a record high of nearly $300 a share. However, since then, the stock is headed for its second annual decline of more than -40% this year. That contrasts with other e-commerce stocks. An exchange-traded fund that tracks online retailers is moving higher this year, lifted by significant gains in Amazon.com (AMZN), Wayfair (W), and Shopify (SHOP), which are all up more than +60%.
Some analysts are attracted to Etsy’s low valuation. At 16 times earnings projected over the next 12 months, Etsy is priced well below its average over the past five years of 46 times and at a significant discount to its e-commerce peers. However, even with the attractive valuation, Etsy’s revenue growth is well below what it was during the pandemic. According to Bloomberg data, Etsy’s sales are expected to expand +7% in 2023, compared with an average of +46% over the past five years.
A sustainable recovery in Etsy remains uncertain. Zevenbergen Capital Management LLC said unlike Amazon, which has a dominant market position and strong balance sheet, companies like Etsy may be viewed as more niche and discretionary. Also, Evercore ISI, which has an outperform rating on Etsy, said, “While we see upside in the mid-to-long-term, we also believe the shares could remain range-bound in the near term.” However, Huntington Private Bank sees Etsy benefiting from overly pessimistic assumptions and said its depressed valuation makes it compelling and “worth taking a swing at.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
