Etsy (ETSY) stock is down 40% since hitting a record high in November. But now that it’s been named a top stock pick for 2022 by a Wall Street investment bank, is Etsy stock a buy?
Needham analyst Anna Andreeva, in selecting Etsy as a top pick, said Etsy has a unique business model that in the last few years has gone from a niche e-commerce marketplace to a top-of-mind shopping destination across numerous categories.
Etsy provides an online e-commerce platform where creators of arts and crafts, vintage items and other unique goods go to sell their products.
“Etsy is still in the early innings of several product and marketing initiatives to engage and retain the record-high number of buyers and sellers added to the platform in the last 18 months,” she wrote in a note to clients.
An Early Beneficiary Of The Pandemic
During the early stages of the pandemic, Etsy was a big beneficiary of the pandemic. Stuck-at-home shoppers turned to Etsy and other online retailers for both essential and non-essential items. As the virus caused dramatic changes to daily living, Etsy sellers moved quickly to help consumers deal with the rapidly evolving needs.
But Etsy, along with other social media stocks such as Snap (SNAP) and Pinterest (PINS), are well below their highs for various reasons. This includes having to deal with changes Apple (AAPL) made to its privacy settings on its operating system. The changes reduced the ability of social media companies to target ads based on users’ likes and dislikes.
Another reason is supply chain disruptions. The pandemic has also stifled short-term spending on advertising. That’s because companies do not want to spur demand for products they may not have in stock.
The question is, what happens now? The impact that the fast moving omicron variant could have on social media stocks as the new year begins remains unclear.
For now, the good news is that the advertising outlook for social media stocks looks bullish. Ads account for the bulk of revenue these companies receive.
Digital ads overall will exceed 60% of global ad spending for the first time in 2022, according to Zenith Media. Zenith expects social media stocks will see ad spending rise to $177 billion in 2022. It will overtake television and further surge to $225 billion by 2024, Zenith says.
Zenith also sees social media as the fastest-growing market segment between 2021 and 2024, with an average annual growth rate of 15%. Online video closely follows at 14%.
Cyclical Events Boosting Social Media Stocks
Helping the ad marketplace in 2022 will be three cyclical events. The Beijing Winter Olympics begin Feb. 4, while the FIFA Men’s World Cup in soccer starts Nov. 21. Also, the U.S. midterm elections in November will produce incremental increases in ad spending.
Andreeva believes that Etsy stock is poised favorably for attractive returns in 2022. She is encouraged by the company’s focus on increasing purchase frequency and retaining existing buyers on its platform. The analyst believes that these initiatives will drive sustained double-digit growth in gross merchandise sales.
Etsy reported third-quarter results in early November that beat estimates on better-than-expected gross merchandise sales. Etsy said gross merchandise sales climbed 18% to $3.1 billion, above the average estimate of $2.97 billion. Etsy said it expects merchandise sales in the range of $3.9 billion to $4.1 billion in the fourth quarter, or about 5% ahead of expectations.
Andreeva has a buy rating on Etsy stock and a price target of 325. That’s 70% higher than where the stock currently trades. It currently trades well below its 50-day moving average, as well as its 200-day moving average, which are negative signs.
Etsy Stock Technical Analysis
A technical analysis of Etsy stock is a key component of determining whether it’s worth buying.
The IBD Stock Checkup Tool shows that Etsy has an IBD Composite Rating of 54 out of a best-possible 99. When choosing growth stocks for the biggest potential gains based on the CAN SLIM investment paradigm, focus on those with a Composite Rating of 90 or higher. The best stocks will often rate 98 or 99 at the time they launch a big price run.
Its Relative Strength Rating is a 31 out of 99. The rating means that Etsy stock has outperformed 31% of all stocks in the IBD database over the past 12 months. Ideally, look for stocks with a rating of 80 or higher. The best stocks will often rate over 90 at the time they launch a big price run.
Etsy has an Accumulation/Distribution Rating of C+. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. A grade of A signals heavy institutional buying. The lowest rating of E means heavy selling. Think of the C grade as neutral.
In addition, Etsy’s relative strength line has been sliding sideways. It compares the stock’s daily price performance to the S&P 500. An upward-sloping RS line means the stock is outperforming the S&P 500. A downward-sloping line means the stock is lagging the S&P 500.
Is Etsy Stock A Buy?
Etsy stock is not a buy at this time.
If you’re interested in buying large-cap stocks, in these articles you’ll find technical analysis of leading large caps to see if they are in or near a proper buy zone.
You’ll also find alerts to warning signs and sell signals that show when to take your profits or cut short any losses. You’ll also discover if the current stock market trend is conducive to buying stocks, or if it’s an environment where you want to take defensive action and sell.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
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