It's been a terrible year for Etsy (ETSY -1.27%) and GoPro (GPRO -0.56%) investors. Their stocks have absolutely plummeted. Year to date, GoPro stock is down 72%, and Etsy is down 68% since it went public in April. While there are reasons for both of the stock's sell-offs, could the market have overreacted?
Let's take a closer look at both.
Etsy
|
Market Cap |
Price-to-sales ratio |
Q3 Revenue Growth (YOY) |
|---|---|---|
|
$1.1 billion |
4.3 |
37.9% |
What has been the main reason for Etsy stock's sell-off? A poorly timed initial public offering. Etsy shares started trading just a month before Amazon.com began sending out invitations for its new handcrafted-goods marketplace. And worries compounded when the e-commerce giant followed through on its invites by officially rolling out the new marketplace in October.
But there are a number of reasons for Etsy investors to keep their heads up. Consider these tidbits:
- Handmade at Amazon launched with 5,000 sellers. Etsy has 1.5 million active sellers.
- Etsy's active seller count is still growing rapidly. The marketplace added 49,000 sellers between Q2 and Q3.
- Etsy's gross profit margin is improving and operating expenses are declining as a percentage of revenue, year over year.
- Ebay has proven other marketplaces can effectively compete with Amazon when differentiated enough.
But in a nod to the bears, Etsy's valuation does seem a bit steep -- even after a huge sell-off. Etsy's price-to-sales ratio of 4.3, for instance, is well above eBay's ratio of 1.9.
GoPro
|
Market Cap |
Price-to-sales ratio |
Q3 Revenue Growth (YOY) |
|---|---|---|
|
$2.5 billion |
1.4 |
43% |
Investor concerns for GoPro mounted when the company's new, lower-priced camera -- the HERO4 Session -- failed to live up to investors' and management's expectations. As a result, the company's revenue and EPS came in below management's guidance for the quarter -- a first since the company went public in 2014.
GoPro flagship line of cameras. Image source: GoPro
But, like Etsy, GoPro has a number of things going quite well for a stock in decline:
- Gross margin and operating margin are both rising rapidly, boosting profitability.
- EPS is soaring. The company's year-to-date non-GAAP EPS of $0.84 absolutely crushed its $0.31 in the year-ago period.
- While a huge price cut to its Session to better position the lower-cost device compared to its other products will certainly reduce the product's profitability, it also puts the company in a key position to grow market share faster and create more brand evangelists.
Unlike Etsy, GoPro's cheap valuation makes the stock look like a steal. Its wildly conservative price-to-earnings ratio of just 15 has arguably priced in even worst-case scenarios for this winning brand.
While both stocks are down considerably this year, GoPro looks like the better buy going into 2016.
