When Should You Buy Etsy, Inc. (NASDAQ:ETSY)?

Etsy, Inc. (NASDAQ:ETSY), might not be a large cap stock, but it saw a significant share price rise of 48% in the past couple of months on the NASDAQGS. The company is inching closer to its yearly highs following the recent share price climb. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s examine Etsy’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

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What's The Opportunity In Etsy?

Etsy is currently expensive based on our price multiple model, where we look at the company's price-to-earnings ratio in comparison to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Etsy’s ratio of 34.83x is above its peer average of 15.68x, which suggests the stock is trading at a higher price compared to the Multiline Retail industry. But, is there another opportunity to buy low in the future? Since Etsy’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

See our latest analysis for Etsy

What kind of growth will Etsy generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 97% over the next couple of years, the future seems bright for Etsy. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in ETSY’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe ETSY should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on ETSY for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for ETSY, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Etsy at this point in time. Every company has risks, and we've spotted 4 warning signs for Etsy (of which 1 is a bit unpleasant!) you should know about.

If you are no longer interested in Etsy, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.