E-commerce has soared to heights never seen before after physical store locations closed due to the COVID-19 pandemic. Although Amazon holds a commanding market share in the industry, other companies, such as Etsy, have found a way to co-exist with them by entering niche markets within the e-commerce space.
Etsy is an online marketplace that allows individuals or small business owners to sell their “unique and creative goods” to anyone browsing the website. In the past six months, their stock price has grown from around $50 to the current price of about $114 (at the time of publication). However, at the beginning of August, Etsy shares were trading at an all-time high of ~$136. The ~16% decline in stock price since last month lends analysts at Jefferies to believe that the current price of Etsy presents a unique buying opportunity, causing them to reiterate their Buy rating and $163 price target on Friday.
The price target on Etsy’s stock can be attributed to strong company financials and supported by current peer valuations. According to Jefferies, Etsy currently has an EV/EBITDA multiple that is equivalent to their historical average even though the company has benefited from the pandemic. Moreover, given the strength in the shares of Etsy’s peers, Etsy is currently valued at a ~15% discount to the “peer-based growth-adjusted multiple,” which compares the stocks historical 20-30% premium versus peers. Jefferies believes that both of these statistics show that the company is undervalued and has a high potential for upside.
The reiteration of the $163 price target can also be attributed to positive read-throughs from the growth seen at Society6, a company that also has an online marketplace where home decor, wall art, and many other unique products are sold. Earlier this week, Society6 announced that it had 116% year-over-year growth in the month of August. Jefferies estimates that there is a 70% overlap in the two companies demonstrating that Etsy should follow a similar trend for Q3 of 2020.
Another thing to note is that with people’s rapid movement out of apartments in cities such as New York to larger homes in the suburbs, makes home decor purchases more essential.
Etsy has a significant upside, according to Jefferies, and could be the next stock to invest in. What do you think? Let us know in the comments below!
Disclosure: At the time of publication, I have no positions in any of the securities mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for creating this article (other than from TheStreet) and have no business relationship with any company whose stock is mentioned in this article.