Please ensure Javascript is enabled for purposes of website accessibility

Here's a No-Brainer Growth Stock You Should Invest $500 in Today

By Neil Patel – Updated Sep 16, 2021 at 5:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

What may seem like a small sum of money today could increase significantly in value over time.

Investing in the stock market has never been easier. There are a number of different low-cost brokerages to choose from, and it's a quick and painless process to open an account. Most even offer the ability to buy fractional shares, meaning that you can focus on putting a specific cash amount to work in any stock even if the nominal price is too high. 

If you only have $500 ready to invest today, you can still buy approximately 2.3 shares in this exceptional growth stock. Read on to find out why this could be a lucrative decision for your portfolio. 

Person removing a piece of pottery from a box that came in the mail.

Image source: Getty Images.

Winning before the pandemic 

The specific stock I am talking about is Etsy (ETSY -5.74%), the global online marketplace for handmade and vintage goods. While the coronavirus pandemic certainly boosted its business as people flocked to the website to purchase face masks, the company was already thriving in the years leading up to 2020. From 2014 through 2019, revenue skyrocketed 318%. And during that same five-year stretch, Etsy went from producing a net loss of $15 million to a bottom-line profit of $96 million. 

Not only is the company clearly riding the e-commerce boom, but it also gains as consumers are increasingly interested in supporting small businesses. Entrepreneurs on the site sell anything from home furnishings and jewelry to apparel and beauty products. An impressive 88% of Etsy buyers reported that the marketplace has items they can't find anywhere else. This unique market position only supports Etsy's value proposition for its users, and it will be the case for a long time. 

Benefiting from network effects 

As of the end of the most recent quarter, Etsy counted 5.2 million active sellers (up 67%) and 90.5 million active buyers (up 50%) on its platform. A growing user base means the business has an economic moat that comes from a valuable network effect. More buyers attract more sellers and vice versa. This virtuous cycle makes it nearly impossible for a new rival to compete with Etsy's scale. 

An eye-popping stat is that Etsy's habitual buyers (those with six or more purchase days or at least $200 in spending over the past 12 months) grew 115% in Q2 2021 compared to the prior-year period. As the fastest-growing buyer group, they provide Etsy with a sticky customer base already familiar with the e-commerce site's usefulness. 

And because Etsy also focuses on offering more tools to its seller base, like Etsy Ads and Etsy Payments, the business is able to extract more value for itself. In the most recent quarter, Etsy's take rate (the amount of gross merchandise sales taken as revenue) was at a healthy 17.4%, up from 15.9% in Q2 2020. More users and a higher take rate are telltale signs of just how solid Etsy's prospects are. 

Outstanding growth prospects 

Etsy's stock took a hit immediately after the company reported its most recent financial results, mainly because of the imminent slowdown in the near term following the pandemic surge in 2020. Since then, however, the stock has recovered nicely and is up about 8%. I think the market is correctly starting to realize that the growth story for Etsy is still very much intact. 

Seven core geographies, including the U.S., U.K., Canada, Germany, Australia, France, and India, present Etsy with a massive $1.7 trillion global revenue opportunity. And the recent acquisitions of Depop, a secondhand fashion reseller, and Elo7, a Brazil-based handmade goods marketplace, expand Etsy's product categories and worldwide reach. It's all part of CEO Josh Silverman's plan to build a "House of Brands." 

While $500 may not seem like a lot of money, it can give you exposure to an outstanding company like Etsy. This booming e-commerce business has been flourishing for many years, possesses powerful network effects, and still has a long growth runway ahead of it. As a result, Etsy is a no-brainer stock to own today. 

Neil Patel owns shares of Etsy. The Motley Fool owns shares of and recommends Etsy. The Motley Fool has a disclosure policy.

Stocks Mentioned

Etsy Stock Quote
$126.78 (-5.74%) $-7.72

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.