Over the past six months, Etsy has been a great trade, beating the S&P 500 by 24.3%. Its stock price has climbed to $64.15, representing a healthy 39.9% increase. This 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? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Etsy Not Exciting?
We’re glad investors have benefited from the price increase, but we're cautious about Etsy. Here are three reasons you should be careful with 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 93.33 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. Projected Revenue Growth Shows Limited Upside
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 stall, a deceleration versus This projection doesn't excite us and implies its products and services will face some demand challenges.
3. EPS Growth Has Stalled
We track the change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Etsy’s flat EPS over the last three years was below its 5.5% 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 10.8× forward EV/EBITDA (or $64.15 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward one of our all-time favorite software stocks.
Stocks We Would Buy Instead of Etsy
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