What happened
Week to date, shares of Etsy (ETSY +3.74%) were down 13% through Thursday's close, according to data provided by S&P Global Market Intelligence.
It's been a brutal start to the year for growth stocks, especially for companies that saw meaningful revenue growth during the pandemic in 2020. The combination of decelerating growth and high valuations have weighed on Etsy in the last month. But one analyst is starting to see value with the shares down 55% from recent highs.
ETSY P/E ratio (forward). Data by YCharts.
So what
Analysts at UBS upgraded the stock to neutral from a sell rating this week. The main reason cited is Etsy's track record of delivering profitable growth, along with the stock's lower valuation.
Its current forward price-to-earnings ratio based on this year's consensus analyst estimate is 30, which is much more attractive than the 60-ish level the stock traded for a year ago.
Of course, UBS is not totally on the bandwagon yet, as noted by the neutral position on the stock. Etsy is a much better value right now than a year ago, but it is up against some difficult year-over-year growth comparisons in the next few quarters.
Image source: Getty Images.
Now what
Investors should expect Etsy's revenue growth to pick up once the difficult growth comparisons with the first half of 2021 are behind the company. The online seller of handmade and vintage goods will be reporting first- and second-quarter results this year against last year's consumer spending boost from stimulus checks. The consensus estimate currently has Etsy growing revenue by 20% for the full year in 2022.
Long term, management sees a multitrillion-dollar market opportunity, and it's a good sign that spending per active user has been increasing every quarter over the last year. This is why the stock should bounce back eventually.
