What happened
Shares of Etsy (ETSY 1.82%) were down 3.5% as of 1:21 p.m. ET on Monday after a Needham analyst issued a bearish take on the company's ability to deliver satisfactory growth amid economic headwinds.
The stock is down 62% year to date, underperforming the Nasdaq Composite's decline of 25%.
NYSE: ETSY
Key Data Points
So what
Needham analyst Anna Andreeva downgraded the stock to a hold from a buy rating, citing a weakening economic picture in the short term. However, Andreeva still likes the company's long-term potential to become a go-to destination for buyers and sellers, given Etsy's unique positioning as a marketplace for one-of-a-kind items. She also sees a big opportunity for Etsy to drive a higher rate of frequent shoppers.
The call comes after Etsy saw its first-quarter revenue significantly decelerate from the end of 2021. After reporting a strong 35% increase in revenue for the fourth quarter, Etsy saw its gross merchandise sales slow down considerably to start the year, driving revenue up only 3.5% year over year.
Now what
It's a given that consumer discretionary companies are not going to post stellar results in a tough economic environment, especially with higher prices for goods eating into consumers' buying power. But when top stocks decline on these temporary speed bumps, it presents a great opportunity to buy shares at prices that may undershoot a company's long-term value. Buying companies less than their worth is a strategy that has been used by the greatest investors to build tremendous wealth through the stock market.
Etsy currently trades at a price-to-earnings ratio of just 21.7 times this year's consensus earnings estimate. That's not much of a premium for a leading e-commerce brand with above-average growth prospects, and investors usually only the get chance to buy great companies this cheap during severe downturns in the stock market.
