Etsy Inc (ETSY, Financial) has experienced a daily loss of -4.11%, and a 3-month loss of -12.87%. Its Earnings Per Share (EPS) Loss Per Share stands at 5.87. Given these figures, is Etsy's stock significantly undervalued? This article aims to answer this question through a comprehensive valuation analysis. Read on to explore the intrinsic value of Etsy.
A Glimpse into Etsy Inc (ETSY, Financial)
Etsy operates as a top-10 e-commerce marketplace operator in the U.S. and the U.K., with significant operations in Germany, France, Australia, and Canada. The firm dominates an interesting niche, connecting buyers and sellers through its online market to exchange vintage and craft goods. With $13.3 billion in 2022 consolidated gross merchandise volume, Etsy has established itself as one of the largest players in a rapidly growing space. Its revenue sources include listing fees, commissions on sold items, advertising services, payment processing, and shipping labels. As of the end of 2022, Etsy connected more than 95 million buyers and 7.5 million sellers on its marketplace properties: Etsy, Reverb (musical equipment), Elo7 (crafts in Brazil), and Depop (clothing resale).
At a price of $80.96 per share, Etsy's market cap stands at $10 billion. The GF Value of Etsy is $187.12, indicating that the stock is significantly undervalued.
Understanding the GF Value of Etsy (ETSY, Financial)
The GF Value represents the current intrinsic value of a stock, derived from our proprietary method. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally trade. It is computed based on three factors: historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance.
According to our valuation method, Etsy (ETSY, Financial) appears to be significantly undervalued. The stock's share price is significantly below the GF Value Line, indicating that the stock may be undervalued and may offer high future returns. Given Etsy's significant undervaluation, the long-term return of its stock is likely to be much higher than its business growth.
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Evaluating Etsy's Financial Strength
Companies with weak financial strength pose a high risk of permanent capital loss to investors. To avoid this risk, it's crucial to review a company's financial strength before deciding to purchase shares. Etsy's cash-to-debt ratio of 0.45 ranks worse than 52.04% of companies in the Retail - Cyclical industry. The overall financial strength of Etsy is 4 out of 10, indicating that its financial strength is poor.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Etsy has been profitable for 5 years over the past 10 years. Its operating margin of 13.98% is better than 86.83% of companies in the Retail - Cyclical industry. GuruFocus ranks Etsy's profitability as fair.
Growth is a crucial factor in the valuation of a company. Etsy's growth ranks better than 93.97% of companies in the Retail - Cyclical industry in terms of 3-year average annual revenue growth. However, its 3-year average EBITDA growth rate ranks worse than 0% of companies in the Retail - Cyclical industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Etsy's return on invested capital is 25.19, and its cost of capital is 11.83.
Conclusion
Overall, Etsy (ETSY, Financial) stock appears to be significantly undervalued. The company's financial condition is poor, and 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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