It's been a terrible year for Etsy (NASDAQ:ETSY) and GoPro (NASDAQ:GPRO) investors. Their stocks have absolutely plummeted. Year to date, GoPro stock is down 72%, and Etsy is down 68% since it went public in April. While there are reasons for both of the stock's sell-offs, could the market have overreacted?

ETSY Chart

ETSY data by YCharts

Let's take a closer look at both.


Market Cap

Price-to-sales ratio

Q3 Revenue Growth (YOY)

$1.1 billion



What has been the main reason for Etsy stock's sell-off? A poorly timed initial public offering. Etsy shares started trading just a month before began sending out invitations for its new handcrafted-goods marketplace. And worries compounded when the e-commerce giant followed through on its invites by officially rolling out the new marketplace in October. 

But there are a number of reasons for Etsy investors to keep their heads up. Consider these tidbits:

  • Handmade at Amazon launched with 5,000 sellers. Etsy has 1.5 million active sellers.
  • Etsy's active seller count is still growing rapidly. The marketplace added 49,000 sellers between Q2 and Q3.
  • Etsy's gross profit margin is improving and operating expenses are declining as a percentage of revenue, year over year.
  • Ebay has proven other marketplaces can effectively compete with Amazon when differentiated enough.

But in a nod to the bears, Etsy's valuation does seem a bit steep -- even after a huge sell-off. Etsy's price-to-sales ratio of 4.3, for instance, is well above eBay's ratio of 1.9.


Market Cap

Price-to-sales ratio

Q3 Revenue Growth (YOY)

$2.5 billion



Investor concerns for GoPro mounted when the company's new, lower-priced camera -- the HERO4 Session -- failed to live up to investors' and management's expectations. As a result, the company's revenue and EPS came in below management's guidance for the quarter -- a first since the company went public in 2014.

GoPro flagship line of cameras. Image source: GoPro

But, like Etsy, GoPro has a number of things going quite well for a stock in decline:

  • Gross margin and operating margin are both rising rapidly, boosting profitability.
  • EPS is soaring. The company's year-to-date non-GAAP EPS of $0.84 absolutely crushed its $0.31 in the year-ago period.
  • While a huge price cut to its Session to better position the lower-cost device compared to its other products will certainly reduce the product's profitability, it also puts the company in a key position to grow market share faster and create more brand evangelists.

Unlike Etsy, GoPro's cheap valuation makes the stock look like a steal. Its wildly conservative price-to-earnings ratio of just 15 has arguably priced in even worst-case scenarios for this winning brand.

While both stocks are down considerably this year, GoPro looks like the better buy going into 2016.

Daniel Sparks has no position in any stocks mentioned. The Motley Fool owns shares of and recommends, eBay, and GoPro. The Motley Fool owns shares of Etsy,. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.