ETSY: 2 Stocks That Have More Room to Run: Etsy and Chegg

Looking for market cap growth in 2021
ETSY is an e-commerce platform
Chegg (CHGG) is an online tutoring site that started like Amazon
Takeover candidates or companies that could sidestep a tech-wreck in 2021

It can be more than a challenge to identify value in the stock market these days with the leading indices at all-time peaks. The technology sector outperformed the market in 2020. While the DJIA rose 7.25% last year and the S&P 500 rose 16.26%, the tech-heavy NASDAQ posted an over 43.6% gain for the year that ended on December 31, 2020. Technology helped the US and the world through the global pandemic, allowing people to communicate, work from home, shop from the confines of their residences, and entertain themselves. Earnings skyrockets as the addressable market for technology-based products exploded. Those who rarely used technology in the past were quickly educated because of need rather than desire.

As we move forward into 2021, market caps in the technology sector have swollen to levels that could become unsustainable unless earnings keep pace with expectations. I have been snooping around for tech stocks with low to medium-level market caps and room to grow this year. Two companies that meet the criteria are ETSY, Inc (ETSY) and Chegg, Inc (CHGG). Both offer technology solutions for essential needs, which has been a formula for growth.

Looking for market cap growth in 2021

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It is possible that the increase in market caps in the technology sector, as well as the overall stock market, is a mirage. As the value and purchasing power of fiat money declines, asset prices are rising. The bottom line is that a trillion dollars are not what it once was. With the leading technology companies’ market caps in the trillions, identifying companies with explosive growth potential could be a function of finding companies with lower market cap levels, a technology angle, and room for expansion. Technology companies that fly below the radar offer the best potential for gains.

While all stock prices may continue to rise, it could become challenging for the leading companies with massive market caps to experience the same growth level as seen in 2020. Moreover, changes in the political landscape could hamper their potential. Those technology-related companies with smaller market caps could experience significant growth while the leaders weigh down the sector’s overall performance.

ETSY is an e-commerce platform

Etsy, Inc. (ETSY) operates e-commerce marketplaces for buyers and sellers in the US, UK, Canada, Australia, France, and Germany. ETSY offers tens of millions of retail products in a wide range of categories to buyers. Simultaneously, it provides sellers with services, including a payment processing system, advertising, and analytical tools. ETSY began operations in 2005 with its headquarters in Brooklyn, New York. The company’s growth has been impressive.

Source: Yahoo Finance

The chart highlights steady revenue and earnings growth from 2016 through 2019.

Source: Yahoo Finance

The trend continued over the past four quarters, with ETSY experience a dip in Q1 as the global pandemic initially impacted business.

Source: Yahoo Finance

As the chart shows, ETSY has been consistently profitable over the past four quarters and exceeded analyst EPS expectations over three of four. The consensus estimate for Q4 2020 is earnings of 57 cents per share.

ETSY went public in mid-April 2015 at $16 per share.

Source: Barchart

The stock exploded higher since March 2020 when it traded to a low of $29.95. At the $204.42 level at the end of last week, ETSY had a market cap of $25.776 billion. Compared to other diversified e-commerce platforms, the market cap is low. ETSY could be a takeover candidate, but it is likely to experience continued growth if left on its own, given the revenue and earnings trend.

Chegg (CHGG) is an online tutoring site that started like Amazon

Chegg, Inc. (CHGG) operates a direct-to-student learning platform that follows students from high school to college and into their careers. The company offers tools and services that support success on examinations, in classes while saving them money on required materials. CHGG products aid students in writing and math and professional areas such as engineering, data science, data analytics, product design, and management. Chegg Prep aids with internships, college admission, and scholarships. The company also rents print textbooks and eTextbooks, and other supplemental materials. Like ETSY, CHGG has been around since 2005. The company’s headquarters are in Santa Clara, California.

Source: Yahoo Finance

CHGG’s revenue and earnings trend has been positive from 2016 through 2019.

Source: Yahoo Finance

The company posted earnings over the past four consecutive quarters, beating analyst estimates in each. The current forecast for Q4 is for CHGG to earn 49 cents per share.

CHGG’s IPO in 2013 was at $12.50 per share.

Source: Barchart

The chart shows the stock dipped to a low of $3.15 in 2016 and made a far higher low at $25.89 in March 2020. CHGG shares have been steaming higher since the March low and were trading at just below the $98 level at the end of last week. CHGG’s current market cap is $12.594 billion, leaving room for growth.

Amazon.com (AMZN) began as a bookseller. While CHGG is not likely to experience the level of success as Jeff Bezos’s business, the stock has lots of upside potential. The trend towards online learning is likely to continue in the aftermath of the global pandemic, which supports future earnings. CHGG is another example of a business with a technology angle that has substantial growth potential.

Takeover candidates or companies that could sidestep a tech-wreck in 2021

ETSY and CHGG are two companies that address consumers’ needs with technology. While the leading technology companies could face regulatory winds in 2021 and beyond, the e-commerce platform with a market cap below $26 billion and the educational company with under a $13 market cap would likely outperform the market leaders if more regulations cause companies to break into pieces. Moreover, a move to limit anticompetitive behaviors could support their share prices.

CHGG and ETSY are also takeover candidates for the companies sitting with massive cash hordes at the beginning of 2021. Technology will continue to change the world over the coming years. Those companies that fly below the radar of government regulators with smaller market caps could have the best potential to grow.

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ETSY shares rose $2.19 (+0.99%) in premarket trading Wednesday. Year-to-date, ETSY has gained 25.63%, versus a 1.85% rise in the benchmark S&P 500 index during the same period.

About the Author: Andrew Hecht

Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...