Etsy’s 19.9% return over the past six months has outpaced the S&P 500 by 16.8%, and its stock price has climbed to $63.65 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in Etsy, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Etsy Not Exciting?
We’re glad investors have benefited from the price increase, but we don't have much confidence in Etsy. Here are three reasons why we avoid ETSY and a stock we'd rather own.
1. Active Buyers Hit a Plateau
As an online marketplace, Etsy generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.
Etsy struggled with new customer acquisition over the last two years as its active buyers were flat at 94.78 million. This performance isn't ideal because internet usage is secular, meaning there are typically unaddressed market opportunities. If Etsy wants to accelerate growth, it likely needs to enhance the appeal of its current offerings or innovate with new products. 
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Etsy’s revenue to drop by 1.8%, a decrease from This projection doesn't excite us and suggests its products and services will see some demand headwinds.
3. EPS Barely Growing
We track the change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Etsy’s EPS grew at a weak 2.6% compounded annual growth rate over the last three years, lower than its 6.1% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Etsy’s business quality ultimately falls short of our standards. With its shares topping the market in recent months, the stock trades at 9× forward EV/EBITDA (or $63.65 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Would Buy Instead of Etsy
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