Etsy (ETSY) has been one of the biggest beneficiaries of the pandemic-fueled surge in online shopping, as demonstrated with its fourth-quarter earnings report that smashed Wall Street estimates, as did its outlook. Is Etsy stock a buy?
Etsy provides an online e-commerce platform where creators of arts and crafts, vintage items and other unique goods go to sell their products.
Like most other companies during the early stages of the pandemic, Etsy warned the virus was dramatically disrupting business trends. However, as things turned out, Etsy is a big beneficiary of the pandemic. Stuck-at-home shoppers turned to Etsy and other online retailers like Amazon (AMZN) and Walmart (WMT) for both essential and non-essential items.
“In March, when the offline world largely shut down, demand for essentials on Etsy exploded,” said Etsy Chief Executive Josh Silverman, in his comments to analysts after the Etsy fourth-quarter earnings report.
As the virus caused dramatic changes to daily living, Etsy sellers moved quickly to help consumers deal with the rapidly evolving needs. This included the creation of face masks at a time when they were hard to get. The masks alone accounted for hundreds of millions in Etsy sales.
“All of this resulted in dramatic growth across all of our buyer segments,” Silverman said.
Etsy User Growth Soars
Etsy added twice as many new buyers in 2020 as they did in 2019. There were many weeks in 2020 where Etsy added more than 1 million new buyers per week. Moreover, about 22 million former buyers who hadn’t shopped at Etsy for more than a year, returned to the site, Silverman said.
As a result, at the end of December, Etsy had 81.9 million active buyers, up 77% from the year ago period. At the same time, the number of people selling goods on Etsy jumped 62% to 4.4 million.
This beehive of activity explains why Etsy reported a whopping 118% growth in gross merchandise sales in the fourth quarter, to $3.6 billion.
The ability of Etsy sellers to shift gears on short notice are among the reasons it has outmaneuvered eBay (EBAY), avoided the Amazon (AMZN) crush, and dodged competition from Overstock.com (OSTK) and Wayfair (W). It also helps that Etsy sellers produce unique, one-of-a-kind products.
On Jan. 26, Etsy got an endorsement from Tesla (TSLA) Chief Executive Elon Musk, who sent out a tweet saying “I kinda love Etsy.” In a subsequent tweet, he said “bought a hand-knit wool Marvin the Martian (helmet) for my dog.”
Etsy Stock Jumps After 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.
But after a management reshuffling and the development of new products, Etsy stock returned to growth mode. 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, evident by a string of quarterly reports that showed continuous revenue momentum.
When Etsy reported fourth-quarter results on Feb. 25, it showed that revenue soared 129% to $617.4. That was well above Wall Street estimates of $515.7 million. Adjusted earnings came in at $1.08 a share. That was a jump of 330% and smashing estimates of 59 cents a share.
The company expects first-quarter revenue in the range of $513 million to $536 million. Wall Street expected $513 million. Etsy expects gross merchandise sales in the range of $2.9 billion to $3.1 billion. That’s up about 20% at the midpoint.
Following the earnings report, several analysts raised the price target on Etsy stock. Needham analyst Rick Patel raised his price target to 235, from 155, with a buy rating. Canaccord Genuity analyst Maria Ripps raised her target to 270, from 215, also with a buy rating.
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 94 out of a best-possible 99, meaning the stock currently tops 94% 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 93. 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 C-. 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. Etsy hit a pandemic-fueled low of 31 in March 2020, then climbed steadily for a year and hit a record high of 251.86 this past March 2. From that point the stock has pulled back about 22%.
On April 5, Etsy crashed below its 50-day line, a negative sign. In addition, Its relative strength line, which hit record highs in late January, has been trending downward. The relative line measures a stock’s strength against all stocks in the S&P 500. The RS line is the blue line in the chart shown. Typically, the RS line of the strongest stocks is either confirming or leading a stock’s price into new high ground.
You’ll also find alerts to warning signs and sell signals that show when to take your profits or cut short any losses. You’ll also discover if the current stock market trend is conducive to buying stocks, or if it’s an environment where you want to take defensive action and sell.
Before making any investment decisions, be sure to check current market conditions and use IBD Stock Checkup to see if your stock gets passing ratings for the most important fundamental and technical criteria.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
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