Etsy: 3 Potential Transactions For Investors Who Think The Stock Is Over The Line (So Far)


  • Etsy stock had a strong 52 week run
  • Covid-19 has provided favorable winds for online marketplaces like Etsy
  • As growth slows now, potential buy and hold investors might expect a dip to $ 200 for a better entry point

Investors in the online marketplace for craftsmen, Etsy (NASDAQ :), have delivered robust returns over the past 12 months.

ETSY shares, which are up 27.5% year-to-date (YTD) and over 103% in the past 52 weeks, hit a record high (ATH) of $ 251.86 early March. On September 17, the stock closed at $ 226.98.

Founded in 2005, Etsy went public in April 2015 with an opening price of $ 31. The 52-week range for the stocks was $ 104.30 to $ 251.86.

With 5.2 million sellers and 90.5 million buyers, “Etsy.com is the 4th largest e-commerce site by number of monthly visits in the United States. The UK is the next market with the highest growth rate.

In addition to its eponymous marketplace, Etsy also has the Reverberation, Elo7 and Depop platforms. Its asset light activity has enabled management to acquire additional activities that could help fuel the group’s growth.

The digital retailer has strong indicators for the second quarter on August 4. EtsyGross Merchandise Volume (GMS), or the total value of goods sold on its platforms, increased 13.1% year-on-year to $ 3.04 billion. Its revenue grew 23.4% year-over-year (YOY) to $ 528.9 billion.

The company reports revenue in two main segments:

  • Market (revenues of $ 395.5 billion, up 19.1%);
  • Services to sellers (revenue of $ 133.4 billion, up 38.0%).

Net income was $ 98.3 million, translated into diluted earnings per share (EPS) of 68 cents. A year ago, EPS was 75 cents. The company ended the quarter with $ 2.5 billion in cash and short-term investments.

Regarding recent results, CEO Josh Silverman said:

“It is a great satisfaction for me and our entire team that we are able to show strong year-over-year growth, with supermarkets and revenues up approximately 13% and 23% respectively. . In fact, excluding face masks, which were a big driver in the period last year, Q2 GMS for the Etsy marketplace grew 31%. “

Etsy expects to reach $ 2.9 billion to $ 3.0 billion in GMS for the third quarter of 2021, indicating a growth rate of around 12.5% ​​Revenue forecast for the same period is 500 to $ 525 million, up 13.5% year-over-year.

However, investors were concerned about the company’s guidance for the third quarter, which suggested slowing revenues. Following the release of second quarter results on August 5, ETSY stock hit an intraday low of $ 174.91. However, since then a further step has taken the shares to $ 228.89.

Given the recent increase of around 30%, investors are wondering what the next step might be for the stock. Let’s take a closer look.

What to expect from ETSY Store

Among the 17 analysts surveyed via Investing.com, Etsy stock has a outperform the rating.

ETSY analyst consensus

Chart: Investing.com

The stocks have a 12-month price target of $ 222.61, which implies a decline of almost 2%. Which means, for now, the street thinks the stock has run its course. The 12-month price range is currently between $ 163 and $ 270.

The P / E, P / S and P / B ratios of the ETSY share are respectively 65.14x, 13.37x and 54.11x. By comparison, comparable ratios for eBay (NASDAQ 🙂 are 22.78x, 4.47x, and 3.76x. Likewise, the reports for Amazon.com (NASDAQ 🙂 stands at 60.35x, 3.96x, and 15.26x.

In other words, ETSY stock looks overvalued compared to two other major ecommerce sites. Investors have, in part, focused on Etsy’s future growth prospects.

For those looking at technical charts, a number of ETSY’s short term oscillators are overbought. While they can go on for weeks or even months, potential profit-taking could also be imminent.

If larger markets or online retailers were to come under pressure during the remainder of the month or into October, we could potentially see Etsy shares drop as low as $ 200, after which the stock could trade sideways while it does. establishes a new base. Such a potential drop would offer new ETSY investors a better entry point.

With a market capitalization (cap) of $ 28.8 billion, Etsy is expected to experience many years of growth. We expect management to develop its product categories in the United States and internationally. However, there could be some short-term profit taking on stocks.

3 possible ways to trade ETSY stocks

1. Buy stocks at current levels

Investors who aren’t concerned about daily price movements or Wall Street’s one-year target price might consider investing in Etsy stocks now.

On September 17, ETSY stock closed at $ 226.98.

Those buy-and-hold investors should expect to hold this long position for several months, if not longer, as the stock potentially tries to hit the all-time high of $ 251.86.

Assuming an investor enters this trade at the current price and leaves around $ 250, the return would be around 10%.

However, investors concerned about large declines might also consider placing a stop-loss around 3-5% below their entry point.

2. Buy an ETF with ETSY as the main holding company

Many readers know that we regularly cover exchange traded funds (ETFs) that might be suitable for buy and hold investors. So, readers who do not wish to invest capital in ETSY stocks but would still like to have substantial exposure to stocks might consider looking for a fund that holds the company as their primary asset.

Here are examples of such ETFs:

  • X Global Ecommerce ETF (NASDAQ :): this fund is down 0.41% year-to-date (YTD) and the ETSY share weighting is 5.18%;
  • AlphaClone Alternative Alpha ETF (NYSE :): the fund is up 15.02% year-to-date and the ETSY stock weighting is 2.99%.
  • SPDR S&P Internet ETF (NYSE :): the fund is up 9.38% year-to-date and the ETSY stock weighting is 2.59%.

3. Bear Put Spread

Readers who believe there may be more profit taking on ETSY stocks in the short term might consider initiating a downward sell spread strategy. As these are options, this arrangement will not suit all investors.

It might also be appropriate for long-term ETSY investors to use this strategy in conjunction with their long-term equity holding. The setup would offer some short-term protection against a price drop in the coming weeks.

This transaction requires a stakeholder to have an Etsy long option with a higher strike price and a short option with a lower strike price. Both put options will have the same expiration date.

Such a downward sales spread would be established for a net debit (or net cost). He will benefit if the price of Etsy shares goes down.

For example, the trader can buy an out-of-the-money (OTM) put option, like the ETSY put option on December 17th at 220 strikes. This option is currently available at $ 17.60. Thus, it would cost the trader $ 1,760 to own this put option, which expires in about three months.

At the same time, the trader would sell another put option with a lower strike price, such as the ETSY 200 exercise put option on December 17th. This option is currently available at $ 9.88. So the trader would receive $ 988 for selling this put option, which also expires in just over three months.

The maximum risk of this transaction would be equal to the cost of the put spread (plus commissions). In our example, the maximum loss would be ($ 17.60 – $ 9.88) X 100 = $ 772.00 (plus commissions).

This maximum loss of $ 772 could easily be realized if the position is held until expiration and both ETSY puts expire worthless. Both put options will expire worthless if the expiration Etsy share price is greater than the long put option’s strike price (higher strike price), which is $ 220.00 at this stage.

The potential profit from this trade is limited to the difference between the strike prices (i.e. ($ 220.00 – $ 200.00) X 100) minus the net cost of the spread (i.e. i.e. $ 772) plus commissions.

In our example, the difference between the strike prices is $ 20.00. Therefore, the profit potential is $ 2,000 – $ 772 = $ 1,228.

This transaction would break even at $ 212.28 on the expiration day (excluding brokerage commissions).


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