It can be hard to find excellent stocks to buy on the dip in a bull market, but it isn't impossible. E-commerce specialist Etsy (ETSY +1.89%) is one excellent candidate. The online retailer was highly successful in the early days of the pandemic, but its shares have been southbound since late 2021. Etsy's shares are down by 38% in the past 12 months alone. Despite the company's issues, long-term investors should strongly consider putting their hard-earned money into this company. Let's find out more.
Zooming out helps a lot
Several major corporations dominate the e-commerce market. Carving out a lucrative niche in this field isn't easy. However, Etsy has successfully done so by focusing primarily on vintage and handmade goods. Specialization has its perks. It has allowed Etsy to become the go-to platform for the kinds of products it sells. Consumers would rather not have to sort through millions of completely irrelevant items before finding what they're looking for.
It's telling that most shoppers on Etsy agree that the platform carries items that are difficult to find elsewhere, according to surveys the company ran on its website. That's been an important factor driving Etsy's revenue higher. Even though it hasn't grown as fast as it did during the early pandemic years, Etsy has delivered exceptional top-line growth over the past nine years since its 2015 IPO.
ETSY Revenue (Quarterly) data by YCharts
Etsy's recent slowdown is partly due to economic conditions. Vintage goods aren't cheap, or critical to people's lives. When consumers are strapped for cash, these are precisely the kinds of products they are the most likely to forgo. But economic issues don't last forever. And even some of the most successful corporations in the world are somewhat susceptible to economic cycles. Etsy's revenue growth should bounce back as things get better.
NYSE: ETSY
Key Data Points
Plenty of room to grow
E-commerce seems ubiquitous now, but the industry is still growing, something analysts project will continue for the foreseeable future. It's easy to understand why. E-commerce allows for a much larger pool of potential buyers and sellers. People were traditionally constrained within relatively small geographical limits if they wanted to purchase or sell certain items. Now, consumers can order products from different countries and have them delivered to their doorsteps relatively quickly.
Many e-commerce leaders benefit from the network effect -- that is, the value of their platform increases with use. Etsy also falls under this category. The company's vast network of sellers looking for the kinds of vintage and handmade goods it offers attracts more buyers, and vice versa. The importance of this dynamic can hardly be overstated. It should allow Etsy to remain a leader in the field since newcomers will find it hard to crack its network effect.
The company ended 2023 with about 9 million active sellers, a 21% year-over-year increase. Etsy's active buyers at the end of the year grew by 1.5% to 96.5 million. True, Etsy does have some competitors, but it has been able to succeed even in the crowded e-commerce market, and thanks to its solid moat, it should continue doing so. Etsy estimates that it has captured just a 2% share of its total addressable market. If the company can even double that total in the next five years, its top and bottom lines will steadily move in the right direction.
So there remains massive whitespace ahead for the company. Investors should look past Etsy's recent issues, especially as its shares continue to lag the broader market. Initiating a position now could lead to massive returns in 10 years.
