Shares of Etsy (ETSY -1.41%) recently surged after the online marketplace's fourth-quarter sales and earnings growth topped Wall Street's expectations. Etsy's revenue rose 47% annually to $200 million, clearing estimates by $5 million and marking of accelerating sales growth.

Etsy's adjusted EBITDA rose 48% annually to $51.4 million, and its adjusted EBITDA margin rose 10 basis points to 25.7%. Its net income fell 8% to $41 million, or $0.32 per share, but still beat expectations by $0.12.

An artisan creates handmade jewelry.

Image source: Getty Images.

Etsy's growth looks solid, but is the stock still worth buying after more than tripling over the past three months?

The key numbers

Etsy attributes its accelerating sales growth in 2018 to stronger GMS (gross merchandise sales) growth, higher transaction fees, and higher revenue from its Promoted Listings. It also saw an acceleration of its GMS per active buyer, along with a 22% jump in "habitual" buyers who spent $200 or more and made purchases on six or more days over the past 12 months.

Etsy's total active sellers rose 9% annually to 2.1 million in 2018, and its active buyers grew 18% to 39.4 million. Its total GMS rose 22% annually during the fourth quarter and 21% for the full year. As seen in the following chart, Etsy's GMS and revenue growth accelerated significantly in 2018, but it expects that growth to cool off slightly in fiscal 2019.




2019 Guidance









YOY growth. Source: Etsy quarterly reports.

Etsy attributes that cautious outlook to global macro challenges like softer consumer spending. However, Etsy often sandbags its guidance -- its GMS and revenue growth in 2018 easily surpassed the guidance it offered during the third quarter.

Etsy also expects its adjusted EBITDA margin to hold steady at 23%-25% for the full year, compared to 23.1% in 2018. This indicates that Etsy should keep its costs under control, and that it probably won't face much meaningful competition this year.

Check out the latest earnings call transcript for Etsy.

Parcels in a tiny shopping cart on a laptop keyboard.

Image source: Getty Images.

Amazon (AMZN -0.34%) tried to challenge Etsy in recent years with Amazon Handmade, but Etsy held its ground with its first mover's advantage in handmade products, its streamlined platform which helps shoppers find niche items, and its use of per-listing fees (as opposed to Amazon's monthly fees). Unlike Amazon, Etsy lets sellers provide links to personal sites, build mailing lists, and deploy other promotional tools.

Etsy's cash and equivalents rose 16% to $367 million for the full year. However, it also recently entered a $200 million revolving credit facility, which boosted its long-term debt from zero at the end of 2017 to $276 million at the end of 2018.

CFO Rachel Glaser skirted questions about the cash being used for potential acquisitions during the conference call, and merely stated that it was "good corporate housekeeping" to accumulate more capital "at attractive rates."

High valuations and big buybacks

Analysts expect Etsy's earnings to rise 43% this year. That's a stellar growth rate, but the bears still argue that the stock is still too pricey at about 90 times this year's earnings.

Nonetheless, investors are clearly willing to pay a premium for Etsy's robust sales growth and wide competitive moat. Etsy is also willing to pay that premium for its own shares. It bought back about $135 million in shares throughout the year at an average price of $30.28 per share, which is roughly half its current price.

Is Etsy worth buying at these levels?

Etsy's business is still firing on all cylinders, and it doesn't face any meaningful near-term headwinds besides a potential slowdown in consumer spending. I wouldn't recommend owning Etsy as a core holding, since its high valuation makes it an easy target during a market downturn. Nonetheless, investors who want a riskier stock with big potential returns can consider nibbling at Etsy at these levels.