What happened

Investors on Friday decided that they had found a bargain in shares of online arts and crafts marketplace Etsy (ETSY 3.61%) -- and they swooped in to snap them up, bidding the stock up by 8.1% as of 11:08 a.m. ET.

You can probably credit a couple of Wall Street analysts for some of that renewed optimism.

So what

Analysts from two Wall Street firms have commented positively on Etsy over the past three days. First, Raymond James upgraded the stock to "outperform" on Wednesday, and put a $100 target price on the shares. Then on Friday, Evercore ISI cut its price target, but to a similar level of $95 -- more than 20% higher than where Etsy stock was trading late Friday morning.

In Raymond James' note, covered on StreetInsider.com, its analyst argued that while Etsy's growth will certainly slow as people revert to their pre-pandemic shopping behaviors, the stock's 62% decline year to date has created a buying opportunity "to own what we view as one of the highest quality names in digital commerce." It might take a year or so for Etsy to get through the coming recession so that the company's long-term potential becomes obvious again -- but the analyst believes it will get there.

Evercore largely agrees with this assessment, writing in a note covered by TheFly.com that while consumers are spending less in the current uncertain macro-economic environment, which will weigh on growth in the short term, Etsy still boasts strong profit margins and strong free cash flow on the sales it does make -- and trades at a bargain price as well.  

Now what

I agree. Etsy has been on my own shopping list for a while now for precisely the reasons Evercore cites. Valued at $10.1 billion and with nearly $550 million in trailing free cash flow, its price-to-free-cash-flow ratio is just 18.5. That's plenty cheap for the 19.5% long-term annualized earnings growth rate that analysts forecast for the company.

While earnings and free cash flow are certainly coming down this year from their pandemic highs, Etsy boasts a defensible moat selling unique and handmade goods that are less apt to be found on competing websites such as Amazon or eBay. Its valuation has come down quite a lot -- as the analysts point out. And its free cash flow remains quite high despite the slowdown in consumer spending -- as they also point out.

Although the last eight or so months have certainly been rough on the stock, I think this popular e-commerce site operator will still be a long-term winner for value investors.