Etsy, Inc. (ETSY) is one of the biggest gainers in the e-commerce space this year, registering a 283.7% gain year-to-date. Known for its vintage handmade products, ETSY has benefited from a pandemic-driven surge in demand. The company’s handmade masks have emerged as the biggest selling product so far this year, accounting for 11% of the total gross merchandise sales (GMS) in the third quarter ended September 30, 2020.

The number of active buyers and sellers on ETS’s platform increased 55.4% and 42%, respectively, in the third quarter, in tune with industry growth. The global shopping online market size is expected to hit $4 trillion this year.

Despite gaining 301.9% over the past year, we think ETSY has plenty of upside left amid the e-commerce boom. The company expects its GMS to rise 65%-85% year-over-year in the fourth quarter. ETSY is rated “Strong Buy” in our proprietary POWR ratings system.

Here are the four reasons why ETSY is a top e-commerce stock:

Solid short-term bullishness

ETSY has an “A” for Trade Grade in our POWR Ratings system. It is currently trading above its 50-day and 200-day moving averages of $142.57 and $121.66, respectively, indicating a golden cross uptrend. Moreover, the stock has gained 113.1% over the past six months.

ETSY delivered impressive financials in the last quarter ended September 30, 2020.Its gross merchandise sales (GMS) increased 119.4% year-over-year to $2.63 billion. Revenue grew 128.1% from the year-ago value to $451.48 million, while its net income rose 520% from the same period last year to $91.76 million. Its EPS increased 525% from the prior year quarter to $0.75.

ETSY was included in the S&P 500 Index on September 21, a milestone for the company. The business tailwind from the pandemic has allowed the company to reach record highs, as revenues increased 68.3% in the trailing 12-months. ETSY has gained 46.5% since its inclusion in the benchmark index.

Impressive long-term performance

ETSY has an “A” for Buy & Hold Grade under POWR Ratings. In terms of proximity to 52-week, which is a key factor that our Buy & Hold Grade considers, ETSY is well-positioned. It is currently trading just 3.7% below its 52-week high of $176.48, which it hit yesterday.

ETSY has gained 743.9% over the past three years, due to its impressive earnings and revenue performance. The company’s revenue and EPS rose at CAGRs of 49.2% and 140.6% respectively, over the past three years. while net income increased at a CAGR of 145.6% over this period.

ETSY’s unique business model has allowed the company to thrive over the past couple of years, despite stiff competition. It adopted several international expansion strategies over the past couple of years, allowing it to quickly become one of the most favored places for sellers to market their unique self-made products.

Solid competitive position

ETSY has an “A” for Peer Grade in our POWR Ratings system. It is currently ranked #11of 60 stocks in the Internet industry. Other popular stocks in this group are Alphabet, Inc. (GOOGL), Booking Holdings. Inc. (BKNG) and Mercado Libre, Inc. (MELI).

GGOGL, BKNG and MELI have gained 30.1%, 4.7% and 185%, respectively, over the past year. This compares to ETSY’s 301.9% returns over the same period.

Underlying industry strength

ETSY has an “A” for Industry Rank in our proprietary rating system. The Internet industry is currently ranked #12 of 123 StockNews.com industries. While the pandemic has accelerated the industry’s growth, the increasing dependence on technology even before the pandemic meant it was already on track to balloon. With remote working expected to continue in the near term, this industry should keep thriving. Also, many people expect the remote working and learning from home culture to stay post pandemic, due to the increased productivity levels it has garnered. As such, the number of people working from home is expected to double in 2021, according to a survey conducted by Enterprise Research Technology. So, internet-oriented industries such as e-commerce and cloud computing are poised to remain in demand in the long term.

Bottom Line

While many investors speculate that there will be a fall in online shopping with the advent of the COVID-19 vaccines, the e-commerce segment is likely to retain high demand levels due primarily to the comfort afforded by e-commerce. g.  So, ETSY is likely to grow significantly in the long term because the company’s unique business model makes it appealing to customers across the world.

ETSY has an average broker rating of 1.12, indicating favorable analyst sentiment. Out of 17 Wall Street Analysts that rated the stocks, 16 rated it “Strong Buy.” The consensus EPS estimate of $0.57 for the current quarter ending December 31, 2020 indicates a 128% rise year-over-year. The company has an impressive earnings surprise history as well; it beat the Street EPS estimates in three t of the trailing four quarters. The consensus revenue estimate of $505.44 million for the current quarter indicates an 87.2% improvement from the same period last year.

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ETSY shares were unchanged in after-hours trading Tuesday. Year-to-date, ETSY has gained 301.35%, versus a 16.48% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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