Stocks moved higher this morning after yesterday’s muted action. The S&P 500 is just a stone’s throw away from its record high from one week ago. Strength in today’s session could provide the necessary boost.
Our trade alert for today focuses on a ticker that analysts are sounding the Buy alarm for. After an epic run to a sky high valuation, the stock price has cooled down to a more attractive entry level. But, if the pros are right, it probably won’t be this low for long.
The online marketplace for crafts and handmade goods, Etsy (ETSY), saw its business soar during the pandemic, posting four subsequent quarters of triple-digit revenue growth. However, due to concerns about slowing growth and stretched valuation, the stock is now down 32% from its February peak. The concern seems overdone, as Stifel analyst Scott W. Devitt recently pointed out, along with an upgrade to Buy:
“We have been warning about approaching comp issues for eCommerce for some time. Etsy has now sold-off by 15% on earnings and ~35% from peak despite showing that it can still grow at a healthy rate while the economy reopens. While it is early in the transition to a mobile society, this stock sell-off sure seems like a good time to position for the other side given how much the pandemic has driven lasting benefits to the Etsy platform. Etsy has been transformed by the pandemic, as we now expect a revenue base in 2021 that was expected in ~2024 pre-COVID. Etsy was growing organically in the low-20s and is now set to grow revenue by a 66% two-year CAGR 2020 and 2021. Our rating shifts back to Buy on the share price pullback while our $205 price target remains unchanged.”
The number of buyers and sellers on its platform has surged over the last year, nearly doubling. Investors should expect slower growth over the rest of the year as the company laps the blowout pandemic performance, but Etsy is still positioned for long-term success.
Many of Etsy’s new users will remain beyond the pandemic as the company offers a unique platform, and for both buyers and sellers there isn’t a similar marketplace offering the vast customer base or the breadth of unique products that Etsy has.
In a survey of customers who use Etsy’s platform, 88% said the company offers items that are not found elsewhere. Customization is also a strong competitive edge as it allows buyers to search for or create something extra special. Searches for personalized items are about 20% more likely to result in a purchase decision, according to the company.
Of the 16 analysts offering recommendations for ETSY stock, 13 rate the stock a Buy, 2 call it a Hold and only one says to Sell ETSY. An average price target of $226.13 implies a 34% upside for the stock.
Where to invest $1,000 right now...
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And it's not Etsy.
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But you have to act now, because a catalyst coming in a few weeks is set to take this company mainstream... And by then, it could be too late.
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