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Is Etsy, Inc. (NASDAQ:ETSY) Potentially Undervalued?

Etsy, Inc. (NASDAQ:ETSY), is not the largest company out there, but it received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$77.13 at one point, and dropping to the lows of US$59.24. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Etsy's current trading price of US$60.80 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Etsy’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Etsy

What Is Etsy Worth?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 24.02x is currently trading slightly above its industry peers’ ratio of 23.15x, which means if you buy Etsy today, you’d be paying a relatively sensible price for it. And if you believe Etsy should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that Etsy’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Etsy?

earnings-and-revenue-growth
earnings-and-revenue-growth

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by 64% over the next couple of years, the future seems bright for Etsy. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? ETSY’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at ETSY? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

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Are you a potential investor? If you’ve been keeping an eye on ETSY, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for ETSY, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you want to dive deeper into Etsy, you'd also look into what risks it is currently facing. Case in point: We've spotted 3 warning signs for Etsy you should be mindful of and 1 of them doesn't sit too well with us.

If you are no longer interested in Etsy, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.