Time To Sell Etsy, Inc (NASDAQ: ETSY)?


Etsy, Inc. (NASDAQ: ETSY) investors have enjoyed seeing the stock price increase by 47.4% over the last month. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at the company’s expected growth and valuation based on its most recent financial data to see if there is further upside moving forward.

What’s The Opportunity In Etsy?

Etsy appears to be overvalued by -26.8% at the moment, based on 9 separate valuation models. The stock is currently trading at $43.81 on the market compared to our average intrinsic value of $32.07. This means that the buying opportunity has probably disappeared for now.

Etsy, Inc. Valuation Detail
Analysis Model Fair Value Upside (Downside)
10-yr DCF Revenue Exit $36.78 -16.1%
5-yr DCF Revenue Exit $39.78 -9.2%
Peer Revenue Multiples $36.02 -17.8%
10-yr DCF EBITDA Exit $31.29 -28.6%
5-yr DCF EBITDA Exit $31.33 -28.5%
Peer EBITDA Multiples $22.50 -48.6%
10-yr DCF Growth Exit $28.29 -35.4%
5-yr DCF Growth Exit $27.26 -37.8%
Peer P/E Multiples $35.35 -19.3%
Average $32.07 -26.8%

Click on any of the analyses above to view the latest model with real-time data.

In addition to this, it seems like Etsy’s share price is quite stable, which could mean two things. One, it may take the share price a while to fall back down to an attractive buying range, and two, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta of 0.23.

Can We Expect Growth From Etsy?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matters the most, a more compelling investment thesis would be high growth potential at a cheap price.

Etsy projected revenue chartsource: finbox.io data explorer

Etsy’s revenue growth is expected to average 18.3% over the next five fiscal years, indicating a solid future ahead. Unless expenses grow at the same level, or higher, this top-line growth should lead to robust cash flows, feeding into a higher share value.

What This Means For Investors

Growth investors typically look to invest in companies that are expanding sales, gaining market share and building customer bases. On the other hand, value investors often argue that the most successful investments are in companies that deliver the highest cash flows while trading at the lowest valuation.

But why not put those hands together? A company that has both growth and value characteristics would certainly make the most attractive investment. So what did we find out about Etsy?

Etsy has positioned itself so that double-digit growth appears to be a reasonable assumption for the foreseeable future. However, this growth does not look highly attractive at current trading levels. As such, investors may want to hold off on buying or adding to their ETSY position for the time being.

It is important to note that there are a variety of other fundamental factors that I have not taken into consideration in this article. If you have not done so already, I highly recommend that you complete your research on Etsy by taking a look at the following:

Valuation Metrics: how much upside do shares of Etsy have based on the Ben Graham Formula? Take a look at our Ben Graham Formula data explorer which also compares the company’s upside to its peers.

Risk Metrics: what is Etsy’s Altman Z score? It’s a famous formula used to predict the probability that a firm will go into bankruptcy within two years. View the company’s Altman Z score here.

Efficiency Metrics: how much free cash flow does Etsy generate as a percentage of total sales? Has it been increasing or decreasing over time? Review the firm’s free cash flow margin here.

As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.

Expertise: Valuation, financial statement analysis. Matt Hogan is also a co-founder of finbox.io. His expertise is in investment decision making. Prior to finbox.io, Matt worked for an investment banking group providing fairness opinions in connection to stock acquisitions. He spent much of his time building valuation models to help clients determine an asset’s fair value. He believes that these same valuation models should be used by all investors before buying or selling a stock. His work is frequently published at InvestorPlace, Benzinga, ValueWalk, AAII, Barron’s, Seeking Alpha and investing.com. Matt can be reached at matt@finbox.io or at +1 (516) 778-6257.

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