Shares of Amwell (AMWL -2.46%) and Etsy (ETSY 1.41%) have fallen 70% and 31%, respectively, from their highs in February. Both companies had benefited from changing consumer dynamics brought on by the coronavirus pandemic. However, their sales are beginning to stall as things return to normal.
There are, fortunately, ample reasons as to why the two can regain their momentum. Buying the dip -- or going long on an asset during a temporary decline -- can be very profitable at the moment. Here's why the overall trend for these stocks is still up and not down.
During Q1 2021, telehealth provider Amwell's revenue grew by just 7% year over year to $57.6 million. At the same time, its operating loss less non-cash items (EBITDA) widened to $26.4 million from $17.7 million due to increased research and development spending on its infrastructure.
What's puzzling is that the number of visits on its platform actually grew by more than 120% from Q1 2020, to 1.6 million. Meanwhile, there are now 81,000 active providers on Amwell, up 240% from the prior year's quarter.
The discrepancy between revenue growth and visit growth is mainly due to Amwell's business model. Its competitors, like Teladoc Health (TDOC 0.05%), typically rely on individual visits for revenue. Amwell, on the other hand, focuses on providing enterprise healthcare. Over 55 health plans and 36,000 businesses choose Amwell as their telehealth provider, covering a total of 80 million patients.
Hence, its customers have much more negotiating power via plan providers in terms of pricing. That's not necessarily a bad thing. On the contrary, employers have been ditching coverage of one-time, emergency use virtual care services in favor of employee telehealth plans.
Amwell has tremendous potential should it effectively monetize its growing user count. Right now, the company has nearly $1 billion worth of cash and investments on hand, which is more than enough to cushion its losses. That also gives Amwell an enterprise value (EV) of $2 billion. At a valuation of 7.5 times EV-to-sales, the stock will become heavily undervalued should its growth pick up. I think the recent uptick in demand for enterprise telehealth will be just the catalyst it needs.
Etsy is an e-commerce platform specializing in home furnishings, jewelry, apparel, and beauty products. Its main selling point is that it connects buyers to specialized handcrafted products made by small-business entrepreneurs. There are currently 90.7 million active buyers and 4.7 million sellers on Etsy from around the world. The company accounts for about 1% of the world's combined retail and e-commerce total addressable market.
In Q1 2021, the gross merchandise volume on its platform rose 128% from a year ago to $3.1 billion. Etsy recognized $551 million in revenue out of that amount, which is up 141% over Q1 2020.
However, the company is projecting its sales growth will fall off a cliff, amounting to a mere 20% increase over the same quarter last year. The decline is largely due to the disappearance of the high volume of mask sales it realized last year and competition from retail re-openings.
With that said, there is still a lot of room for Etsy to grow. Etsy's customer satisfaction rating earned a 59 on the net promoter score, which ranges from negative 100 to positive 100. And Etsy's international segment is booming; sales abroad were up 169% annually in the recent quarter. Almost 42% of the company's sales originate outside the U.S.
Overall, the combination of a great platform and a highly scalable business model makes Etsy a top e-commerce stock to buy on the dip. Its valuation has already dropped from 18.5 times sales in February to about 11 times sales today.