As of July 21, 2023, Etsy Inc (ETSY, Financial) has seen a day's gain of 3.94%, with its stock price standing at $96.74. The company's market cap is $11.9 billion, with sales reaching $2.6 billion. Despite a loss per share of $-5.81, the GF Value of Etsy (ETSY) is $226.92, indicating that the stock is significantly undervalued.
Etsy operates as a top-10 e-commerce marketplace in the U.S. and the U.K., with a strong presence in Germany, France, Australia, and Canada. The company specializes in connecting buyers and sellers of vintage and craft goods. With a gross merchandise volume of $13.3 billion in 2022, Etsy has established itself as a major player in a rapidly growing space. By the end of 2022, the company had connected over 95 million buyers and 7.5 million sellers through its marketplace properties: Etsy, Reverb, Elo7, and Depop.
Understanding Etsy's Valuation
According to GuruFocus' unique valuation method, the GF Value, Etsy's stock appears significantly undervalued. This GF Value is calculated based on historical trading multiples, an adjustment factor from GuruFocus based on past business performance and growth, and future business performance estimates. When the stock price is significantly below the GF Value Line, as is the case with Etsy, it suggests that the stock may be undervalued and could offer high future returns.
As Etsy is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth. For similar investment opportunities, consider these companies that may deliver higher future returns at reduced risk.
Assessing Etsy's Financial Strength
Before investing in a company, it's crucial to evaluate its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. Etsy's cash-to-debt ratio stands at 0.44, which is lower than 52.42% of companies in the Retail - Cyclical industry. This implies that Etsy's overall financial strength is relatively poor, ranking 4 out of 10.
Etsy's Profitability
Consistent profitability over the long term reduces investment risk. Etsy has been profitable 5 times over the past 10 years. With an operating margin of 14.47%, Etsy ranks better than 87.34% of companies in the Retail - Cyclical industry, indicating fair profitability.
Growth Prospects of Etsy
Company growth is a vital factor in valuation. Etsy's average annual revenue growth is 46%, ranking better than 93.94% of companies in the Retail - Cyclical industry. However, its 3-year average EBITDA growth ranks worse than 0% of companies in the same industry.
Comparing ROIC and WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to assess profitability. Over the past 12 months, Etsy's ROIC was 23.67, while its WACC stood at 11.93, indicating that the company is creating value for shareholders.
Conclusion
In conclusion, Etsy (ETSY, Financial) stock appears to be significantly undervalued. The company's financial condition is poor, but its profitability is fair. Its growth ranks worse than 0% of companies in the Retail - Cyclical industry. To learn more about Etsy stock, you can check out its 30-Year Financials here.
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