On July 28, 2023, Etsy Inc (ETSY, Financial) reported a daily gain of 3.73% despite a Loss Per Share of 5.81. This article aims to determine whether the stock is significantly undervalued. We invite you to delve into our valuation analysis for a comprehensive understanding of Etsy's financial position.
Company Overview
Etsy Inc (ETSY, Financial) operates a top-10 e-commerce marketplace in the U.S. and the U.K., with substantial operations in Germany, France, Australia, and Canada. The firm excels in a unique niche, connecting buyers and sellers through its online market for vintage and craft goods. Etsy's consolidated gross merchandise volume reached $13.3 billion in 2022, making it one of the largest players in a rapidly growing space. As of the end of 2022, the firm connected over 95 million buyers and 7.5 million sellers on its marketplace properties: Etsy, Reverb, Elo7, and Depop.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value.
Currently, Etsy's stock is estimated to be significantly undervalued based on the GF Value. With a market cap of $12.2 billion and a stock price of $99.3 per share, Etsy is likely to offer higher future returns due to its undervalued status.
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Financial Strength Analysis
Investing in companies with weak financial strength carries a higher risk of permanent capital loss. Therefore, it's crucial to understand a company's financial strength before investing. Etsy's cash-to-debt ratio of 0.44 is worse than 52.41% of companies in the Retail - Cyclical industry, indicating poor financial strength.
Profitability and Growth
Investing in profitable companies, especially those consistently profitable over the long term, poses less risk. Etsy's profitability is fair, ranking 7 out of 10, with an operating margin of 14.47%, better than 87.37% of companies in the Retail - Cyclical industry.
Growth is a critical factor in a company's valuation. Etsy's 3-year average annual revenue growth rate is 46%, ranking better than 94.07% of companies in the Retail - Cyclical industry. However, its 3-year average EBITDA growth rate ranks worse than 0% of companies in the industry.
ROIC vs WACC
Evaluating a company's profitability can also be achieved by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Etsy's ROIC of 23.67 exceeds its WACC of 12.01, indicating value creation for its shareholders.
Conclusion
In conclusion, Etsy (ETSY, Financial) is estimated to be significantly undervalued. Despite its poor financial condition and fair profitability, the company's growth ranks worse than 0% of companies in the Retail - Cyclical industry. For more information about Etsy stock, check out its 30-Year Financials here.
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