Etsy (ETSY -0.22%), a popular online marketplace where consumers can buy and sell unique, one-of-a-kind goods, experienced a rocky first half of 2022, slumping 66% through June 30. After delivering striking results in the thick of the pandemic, the company struggled to sustain growth in recent quarters. A reopening economy and a weakening consumer as a result of high inflation and rising interest rates have proved to be a grave problem for e-commerce businesses.
That said, the company's second-quarter earnings report, which it posted on July 27, served as an upbeat signal that Etsy's business is built to last -- sending the stock up nearly 10% on the day following the report. Should investors buckle up and buy Etsy stock right now?
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It's all about the fundamentals
In its second quarter, the e-commerce marketplace expanded total sales by 10.6% year over year to $528.9 million, which was on par with analysts' expectations. But its diluted earnings per share of $0.51 stole the show, crushing consensus estimates by a robust 20.8%. Active sellers on the platform grew by an impressive 41.5%, up to 7.4 million, and active buyers climbed a modest 3.8% to finish at 93.9 million.
Etsy's adjusted EBITDA margin also expanded 144 basis points year over year to 27.8%, compared to 26.4% in the same quarter a year ago. Although growth may not be ideal at the moment, there is a silver lining to consider -- the e-commerce marketplace has proven to be profitable and cash flow positive, even in the midst of an uncertain economic backdrop.
For fiscal 2022, Wall Street analysts forecast the company's revenue to increase by just 6.2% year over year to $2.5 billion and its earnings per share to contract 33.8% to $2.25. Next year, which is when Etsy will hopefully be faced with a more favorable economic situation, analysts are projecting top- and bottom-line growth of 16% and 33.3%, respectively.
I think that the pandemic temporarily clouded the company's growth story, and that once comparable metrics normalize, investors will more easily be able to see the long-term potential of Etsy's business. Today, the stock trades at 5.9 times sales, far below its five-year average of 10.5 and significantly lower than its 12.5 price-to-sales multiple at the start of 2022.
Should you buy Etsy stock today?
Short-term, Etsy investors should expect a roller-coaster ride for the foreseeable future, but over the long run, I view the e-commerce marketplace as a secular winner. Not only does the company operate in a niche e-commerce market, but it has already proven to generate consistent net profits and positive cash flow.
And to put the icing on the cake, the stock is trading at a record-low valuation. Although one earnings report isn't all that important over the long run, Etsy's second-quarter performance offers just another reason why this e-commerce stock is here to stay. In my opinion, once macro conditions improve, the company is well-positioned to forge ahead on its spectacular growth journey.
