1 Growth Stock Down 81% to Buy Right Now

Not long ago, Etsy (ETSY -0.74%) it was one of the top companies that investors could own. From the March 2020 pandemic low to the November 2021 all-time high, the stock skyrocketed 837%.

But slowing growth and the market’s disdain for growth technology stocks pressured investor sentiment. Etsy is currently trading 81% below its peak price. But it’s still a smart buying opportunity right now.

increase

Etsy’s growth has been through the roof in 2020 and 2021. The company is adding buyers and sellers to its platform. Its gross merchandise sales (GMS) were growing. The demand was very strong.

However, the normalization of consumer behavior, with people starting to leave their homes to shop again, has created the perfect headwind for Etsy. It also didn’t help that inflation started rearing its ugly head about three years ago.

The slowdown continued. In its most recent quarter (Q2 2024, ended June 30), Etsy saw a 2.1% year-over-year GMS decline. This figure was slightly lower than in the same period three years before. It makes sense for consumers to pull back on discretionary spending when it seems like the price of everything has gone up over the past couple of years.

GMS is expected to decline again in the current quarter.

Decrease

It’s understandable for investors to get caught up in quarterly financial numbers. But if you are a long-term participant in the stock market, then it is always best to zoom out and focus on the big picture. With this perspective, it’s easy to still have a favorable view of Etsy’s business.

The company really differentiates itself. There are wide assortments of products in various categories such as home furnishings, clothing, jewelry and handicrafts tailored to specific needs. According to a survey, 83% of shoppers agreed that Etsy sold items they couldn’t find anywhere else.

The retail sector in general, and the e-commerce niche specifically, is hyper-competitive. All companies operating in the industry have to worry constantly Amazonhis presence. But while the tech titan thrives on mass-produced goods and fast shipping, Etsy appeals to shoppers looking for unique deals. This is a key competitive strength.

Additionally, Etsy’s two-sided ecosystem, as evidenced by its 96.6 million active buyers and 8.8 million active sellers, is supported by network effects. Consumers want to come to the site because there are a lot of specialized products that are sold. Small traders and entrepreneurs looking to showcase their crafts could not find a better platform to set up shop to target a global customer base.

Cheap stock

The S&P 500 is up 19% since Etsy hit an all-time high. However, the e-commerce stock lost 81% of its value in the same time. It is an alarming trend.

However, it does mean that the stock is cheap. They trade at a the forward price-earnings ratio of 12.2, the lowest rating in nearly three years. This depressed multiple suggests that Etsy is a terrible business. And that’s just not true. We have already talked about its market-differentiated offerings and the presence of network effects.

Also consider the total addressable marketwhich management estimates to be $500 billion (taking into account online sales of all relevant product categories) across its six main geographies, which include the US, UK, Canada, Australia, France and Germany.

Plus, Etsy is a consistently profitable business that generates plenty of free cash flow every quarter. This reduces financial risk.

Depending on the state of the economy and the direction of interest rates and inflation, the fear is that the tough times for Etsy could last a few more quarters before things start to pick up. But this is precisely where the opportunity lies for investors. I think three to five years from now, this stock could be a big winner for your portfolio.