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Etsy May Still Have Room To Climb
Stock Analysis & Ideas

Etsy May Still Have Room To Climb

The COVID-19 pandemic turned out to be a positive catalyst for e-commerce at-large and continued growth in the sector bodes well for Etsy (ETSY) stock. ETSY is up more than five-fold over the past year and as investors pivot from pandemic plays to recovery plays, many might think the party’s over.

Upward momentum has cooled-off in recent weeks but while current valuations continue to factor-in the company’s strong prospects for growth, ETSY could continue to move higher.

Growth in 2021 will most likely pale in comparison to 2020 as investors continue to cycle out of last year’s top performing sectors and into stocks whose businesses are set to make a comeback in this year and the next.

While it would be prudent to be cautious, there might be enough in play for ETSY to avoid a feared pullback in price.

Why Slowing Growth Isn’t The End Of The World For Etsy

Triple-digit revenue growth was key in sending ETSY stock soaring in 2020 from around $40 per share to nearly $180. Etsy continues to beat analyst estimates and the stock has trended higher in 2021, with shares currently changing hands at around $220 per share.

But now, with its rate of growth expected to slow, will ETSY start to move in the wrong direction?

This certainly is a possibility as investors switch their focus to recovery plays but there may be a disconnect between perception and reality when it comes to e-commerce.

Current sentiment may consider most of ETSY’s recent success a one-time event, but there’s plenty to suggest that while 2020 was a windfall year, the company has kept a keen eye on its future prospects.

Having made some smart moves to boost its long-term growth, ETSY may be well positioned to beat analysts’ estimates and better-than-expected results could mean higher prices ahead for the stock.

How Future Results Could Beat Expectations

Sell-side consensus calls for Etsy’s sales to rise around 24.7% in 2021. The company decided not to provide full year guidance, and while some may see the company’s reluctance as a sign that future results will fall short of expectations, this is not a certainty.

The rate of growth in the coming year will almost certainly slow compared to 2020, but this has already been factored into estimates, so there still may be room for Etsy to exceed analysts’ expectations.

Some investors may believe that most of the new users that Etsy attracted in 2020 wont stick around in 2021, but many of the first-time shoppers during the pandemic have been successfully converted into regular users of the platform.

Currently ranked the fourth-largest e-commerce site, there seems to be more demand for this specialty e-commerce site (focused on listings for handmade crafts and related items) than investors previously gave it credit.

Etsy could be well-positioned to beat projections in the coming quarters with its expanded user base.

What Analysts Are Saying About ETSY Stock

According to TipRanks, ETSY receives a Strong Buy analyst consensus rating based on 13 Buys, 1 Hold and 1 Sell. The average analyst price target of $234.73 per share implies around 5% upside potential from current prices over the next 12 months. Analyst price targets range from a high of $286 per share to a low of $123 per share. (See Etsy stock analysis on TipRanks)

Bottom Line: Growth Set To Slow, But This e-Commerce Play May Have Room To Run

Etsy may not have another triple-digit year, but skeptical investors today may be overestimating how much of 2020 was a one-time event. 

With signs that many of last year’s first-time users are here to stay, results in subsequent quarters could come in higher than expected. This could help fuel further gains for ETSY stock.

Disclosure: Thomas Niel held no position in any of the stocks mentioned in this article at the time of publication.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

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