Despite a daily loss of -2.54% and a 3-month loss of -13.48%, Etsy Inc (ETSY, Financial) seems to be significantly undervalued according to our valuation analysis. With an Earnings-per-Share (EPS) loss of 5.87, the question arises: Is Etsy (ETSY) an undervalued gem? This analysis will delve into Etsy's financials, market performance, and intrinsic value to provide an answer.
Introduction to Etsy Inc. (ETSY, Financial)
Etsy operates as a top-10 e-commerce marketplace operator in the U.S. and the U.K., with substantial operations in Germany, France, Australia, and Canada. Dominating an interesting niche, Etsy connects buyers and sellers through its online market to exchange vintage and craft goods. As of the end of 2022, the firm 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). This article will compare the current stock price with Etsy's estimated fair value, providing a comprehensive understanding of the company's intrinsic value.
Understanding the GF Value of Etsy (ETSY, Financial)
The GF Value represents the current intrinsic value of a stock derived from our exclusive methodology. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. This valuation is calculated based on historical trading multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future business performance estimates.
According to the GF Value, Etsy (ETSY, Financial) appears to be significantly undervalued. The stock's intrinsic value is estimated based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. At its current price of $80.41 per share, Etsy stock appears to be significantly undervalued. Consequently, the long-term return of Etsy's stock is likely to be much higher than its business growth.
Link: These companies may deliver higher future returns at reduced risk.
Evaluating Etsy's Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it's essential to review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are great ways to understand its financial strength. Etsy has a cash-to-debt ratio of 0.45, which ranks worse than 52% of companies in the Retail - Cyclical industry. The overall financial strength of Etsy is 4 out of 10, indicating that the financial strength of Etsy is poor.
Profitability and Growth of Etsy
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Etsy has been profitable 5 times over the past 10 years. Over the past twelve months, the company had a revenue of $2.70 billion and a Loss Per Share of $5.87. Its operating margin is 13.98%, which ranks better than 86.84% of companies in the Retail - Cyclical industry. Overall, the profitability of Etsy is ranked 7 out of 10, indicating fair profitability.
Growth is probably the most important factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Etsy is 46%, which ranks better than 93.97% of companies in the Retail - Cyclical industry. However, the 3-year average EBITDA growth rate is 0%, which ranks worse than 0% of companies in the Retail - Cyclical industry, indicating a poor growth rank.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Etsy's ROIC was 25.19, while its WACC came in at 11.82.
Conclusion
In conclusion, the stock of Etsy (ETSY, Financial) 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.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
