Is Etsy a Bargain After a 17% Drop Despite New Marketplace Investments?

• Wondering whether Etsy is a hidden bargain or if the current price is already reflecting all the optimism? You are not alone. Savvy investors everywhere are looking for clues about Etsy’s true value in this dynamic market.
• Etsy’s stock has seen quite a ride lately, with a small 2.1% gain in the last week but a 16.9% slide over the past month. This makes its year-to-date performance essentially flat and shows a slightly negative -1.2% return over the last year.
• News about ongoing shifts in ecommerce demand, as well as growing competition from both established players and upstarts, have shaped investor sentiment. Headlines highlighting Etsy’s efforts to diversify its marketplace and invest in seller tools have also caught plenty of attention recently.
• When it comes to valuation, Etsy scores a 3 out of 6 on our value checks, indicating it is undervalued on several important measures, though not across the board. Next up, we will dig into these valuation methods and, by the end, share a perspective on analyzing value that you may not have considered yet.

Find out why Etsy's -1.2% return over the last year is lagging behind its peers.

Approach 1: Etsy Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value by projecting its future cash flows and discounting them back to today's dollars. For Etsy, this method uses cash flow projections to give investors an informed look at the underlying value of the business, regardless of market swings.

Etsy's current Free Cash Flow (FCF) stands at $645.41 Million, according to the latest trailing twelve months data. Analyst forecasts suggest Etsy's FCF will continue growing over the next several years, reaching $783.53 Million by 2029. Beyond the analyst forecast horizon, these projections are extended using moderate growth rates to reflect expected performance through the next decade.

After factoring in all growth and discounting, the DCF model calculates an intrinsic value of $109.97 per share. With the current price standing at roughly half that figure, this represents a substantial 50.7% discount. This suggests that Etsy may be meaningfully undervalued by the market at present.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Etsy is undervalued by 50.7%. Track this in your watchlist or portfolio, or discover 920 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Etsy.

Approach 2: Etsy Price vs Earnings

The Price-to-Earnings (PE) ratio is a key valuation tool for profitable companies like Etsy, as it directly relates what investors are willing to pay for each dollar of a company’s earnings. When a company is generating steady profits, the PE ratio provides a helpful lens for comparing value across businesses, especially in the same industry.

Growth prospects and perceived risks play a major role in shaping what is considered a “normal” or “fair” PE ratio for any stock. Companies with faster expected growth or lower risk typically warrant higher multiples, while those with slower growth or greater uncertainty tend to trade nearer the market or industry average.

Etsy is currently trading at a PE ratio of 29.38x, which is noticeably above both its peer average of 19.24x and the broader multiline retail industry average of 19.89x. However, benchmarks alone do not give the full picture. That is where Simply Wall St’s proprietary “Fair Ratio” comes in, a metric that factors in Etsy’s unique growth outlook, risk profile, profit margins, market capitalization, and industry characteristics to arrive at a more nuanced benchmark. For Etsy, the Fair Ratio is estimated at 22.41x, suggesting that a more tailored expectation for Etsy’s valuation is somewhat lower than where it trades today. Because this difference is greater than the 0.10 threshold, Etsy appears to be valued a bit higher than its fundamentals justify based on this approach.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1443 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Etsy Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your personal perspective on a company. It is a story you create by combining your beliefs about Etsy's future with your expectations for its key financials, such as revenue, earnings, and margins.

Narratives work by linking the company’s story directly to a financial forecast and then translating that into a fair value estimate. Thanks to the Simply Wall St Community page, millions of investors can easily build and update their own Narratives, making this tool accessible to everyone from beginners to professionals.

With Narratives, you can decide when to buy or sell by comparing your fair value to the current share price. This gives you a clear, actionable framework that moves beyond headline numbers. Narratives are dynamic and automatically update when new information, such as news, earnings releases, or company actions, becomes available so your analysis always stays relevant.

For example, if you’re highly optimistic about Etsy’s AI-driven growth, your Narrative might target a high price, such as $86. Someone more cautious about competitive risks and margin pressure may set a much lower fair value, say $48. This approach puts you in control of your investment decisions, guided by your own understanding of Etsy's story and potential.

Do you think there's more to the story for Etsy? Head over to our Community to see what others are saying!

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com