With Etsy (ETSY 6.26%) posting a paltry 5.2% year-over-year revenue growth in the first quarter of this year, this could be cause for concern for investors accustomed to the pandemic winner’s massive gains over the past two years. Of course, sales growth above 100% cannot be expected to continue in perpetuity.
With many others tech stocks there, Etsy shares have been crushed, down 58% so far in 2022. Investors might wonder if that ecommerce sweetheartThe best days are behind. It could certainly appear that way at first.
But if we step back and remember the bigger picture, it will become surprisingly clear that Etsy remains a solid investment.
Thank you economic reopening
With everyone stuck at home, online shopping has been a major beneficiary of the pandemic. As restrictions eased, people started venturing out again. And things are starting to normalize a bit.
It is therefore not surprising that the growth of e-commerce is slowing down. Consumers want to spend on travel and experiences rather than physical goods. So to see Etsy record a jump in sales from the 141.5% year-over-year revenue gain in Q1 2021 is impressive.
“Despite continued uncertainty and macro headwinds, Etsy continues to seize the opportunity to deliver strong results that show us maintaining most of the gains from the extremely strong period of the prior year,” said said CEO Josh Silverman when describing the quarter. The biggest disappointment was that net profit fell 40.1% year over year due to a 71% increase in headcount. But it will surely benefit the company in the future.
Better days ahead
Even with the dizzying pessimism that surrounds pandemic winning stocks, Etsy’s long-term outlook remains unchanged in my view. The company has a superb financial profile, with a 12-month gross margin of 71% and an operating margin of 18.5%. And in addition to the main Etsy site, consumers can shop on the company’s other marketplaces, including Reverb for musical instruments, Depop for second-hand clothing, and Elo7, also known as Etsy’s. Brazil.
Because Etsy sells a wide range of unique and creative merchandise, the global business opportunity is truly enormous. According to management, the company is entering a market worth $466 billion (including Etsy’s product categories in its seven key geographies). For comparison, gross merchandise sales totaled $13.5 billion in 2021, so there’s a ton of potential expansion ahead.
Take advantage of cheap stock
With the stock continuing to decline, Etsy is now trading at an attractive price price/earnings ratio of 31, the lowest since early 2018. It’s safe to say that investors have completely dumped Etsy along with other high-growth, high-growth stocks. However, this company actually has an incredibly bright future.
The next six to 12 months are full of fear and economic uncertainty, and investors may feel more pain. But for those who adopt patience and a long-term mindset, looking at least the next five years, Etsy’s stock looks like a solid buying opportunity today.