It speaks to a pretty crazy summer when a 50% drop in shares a few months ago now looks like little more than a speedbump. But that’s the current state of play with Etsy (NASDAQ: ETSY) whose shares have rallied close to 400% in just six months.
The $13 billion e-commerce platform offers independent sellers an online marketplace where they can create their own storefronts and list their items for sale. Perhaps the business was always going to do well as the shift towards a digital world continues, but coronavirus certainly accelerated their success.
A year on year revenue jump of 34% in May’s earnings report, which was in line with estimates and steady after a similar jump in February, let investors know that Etsy had little to fear from COVID. It was part of, if not at the front of, that segment of e-commerce stocks that came to define the initial phase of the recovery rally in late spring. As well as Etsy, the likes of Amazon (NASDAQ: AMZN), Wayfair (NYSE: W), and Shopify (NYSE: SHOP) all took off to all-time highs as brick and mortar stores shut and consumers turned to online shopping.
Etsy’s most recent earnings report from August suggests there’s plenty of momentum for bulls to feed off. A 137% jump in revenue year on year speaks volumes, with the dollar value itself effectively doubling from last quarter alone.
That’s not to say there aren’t risks however. As we’ve seen in recent weeks, it’s these kinds of high flyer stocks that are most susceptible to fast and nasty pullbacks in the market whenever investors get a little spooked. As part of the cooling off we’ve seen in equities this month, Etsy has watched its shares fall more than 20%.
To be sure, shares are still up more than 250% since March, but how are potential investors meant to feel about the current opportunity?
Did they miss the best tech rally in recent years and the best August since the 1980s? Is this current dip part of a larger pullback, the much-feared second crash which will outdo March’s fall? There are plenty of factors to be thinking about but as we head into a new trading week, there are still fresh voices joining the bull camp.
On Friday, BTIG upgraded shares from a Neutral rating to a Buy. They pointed to signs that Etsy is still enjoying triple digit growth internally and the recent pullback makes for an enticing entry point. From a wide perspective, it looks like consumer spending habits are staying steady, even as unemployment remains high and many businesses remain shut. This strengthens the bull case and should offer potential investors additional confidence to get involved.
Less than a month ago, another bull was out reaffirming their Buy rating. Evercore ISI called Etsy "one of the highest-quality growth stories in digital commerce”, and that was before the current pullback materialized. Their ability to drive high retention among their new customers is seen as key to their long term potential being realized. September has marked another impressive milestone for the company, as they were added into the benchmark S&P 500 index, as part of a fairly heavy reshuffle that saw Tesla (NASDAQ: TSLA) missing out.
For the technical investor, there’s plenty to be excited about. Shares have held the $110 level in recent sessions and have the $100 level as a fallback if weakness continues to permeate into equities this week. And with RSI sloping down towards 30, it’s at its lowest levels since March which suggests that the recent bout of selling is starting to verge on overdone.
All in all, Etsy remains a red hot stock with a bright future and the recent weakness is giving many of us an opportunity to buy in at a discount to recent highs. While the usual risks remain, not least the stock being overvalued, there’s every reason to think Wall Street will continue to back them as digital commerce continues to grow.
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