Recent 10% pullback isn't enough to hurt long-term Etsy (NASDAQ:ETSY) shareholders, they're still up 901% over 5 years

By
Simply Wall St
Published
February 19, 2022
NasdaqGS:ETSY
Source: Shutterstock

Etsy, Inc. (NASDAQ:ETSY) shareholders might understandably be very concerned that the share price has dropped 57% in the last quarter. But that does not change the realty that the stock's performance has been terrific, over five years. In that time, the share price has soared some 901% higher! So it might be that some shareholders are taking profits after good performance. Of course what matters most is whether the business can improve itself sustainably, thus justifying a higher price. It really delights us to see such great share price performance for investors.

Although Etsy has shed US$1.8b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

See our latest analysis for Etsy

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the last half decade, Etsy became profitable. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. We can see that the Etsy share price is up 125% in the last three years. Meanwhile, EPS is up 78% per year. This EPS growth is higher than the 31% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
NasdaqGS:ETSY Earnings Per Share Growth February 19th 2022

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. It might be well worthwhile taking a look at our free report on Etsy's earnings, revenue and cash flow.

A Different Perspective

Investors in Etsy had a tough year, with a total loss of 44%, against a market gain of about 1.4%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 59%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Etsy is showing 2 warning signs in our investment analysis , you should know about...

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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