Why Etsy Is a Prime Choice for Investors During a Market Slump

The stock market has seen turbulent times recently. After a significant drop in the previous year, the market showed signs of recovery. However, stock markets are known for their volatility, and downturns can happen at any time for numerous reasons. It is during such downturns that certain growth stocks become even more attractive, and Etsy, an online marketplace, is one such stock worth considering for a buy-and-hold strategy.

Why Consider Etsy?

Etsy has emerged as a popular platform that connects buyers with creators of unique goods. Known for its surge in popularity during the pandemic, Etsy has shown its potential to attract customers even in difficult times. For example, in 2020, Etsy's revenue soared to $1.7 billion, more than doubling from the previous year. The number of active buyers on Etsy's website continued to grow, reaching 92 million in the third quarter, signifying a 4% increase.

While gross merchandise sales were flat when adjusted for foreign currency translations, this was largely attributed to the economic pressure on consumers. As such conditions ease, Etsy's sales are expected to improve, making the company an attractive investment option in anticipation of market recovery.

Financial Robustness

Etsy's financial health also adds to its appeal. The company reported a revenue increase of 8.4% in the first nine months of the year, with a substantial profit as opposed to a significant loss in the prior year, after adjusting for a one-time impairment charge. Cash flow is a critical indicator of a company's financial health, and Etsy's operating cash flow and free cash flow have both seen year-on-year increases, indicative of the company's strong financial position.

Etsy also benefits from low overhead costs as it does not have heavy investment requirements like inventory or large storage facilities. This ability to generate strong free cash flow, even as the company invests in marketing and product development, positions it well for future growth.

An Attractive Valuation

Over the past year, Etsy's stock price has witnessed a decline, which contrasts with the overall market performance. Part of this decline may be attributed to the high growth expectations set in 2020 and the spending challenges faced by consumers. However, this has led to a more attractive price-to-sales ratio for Etsy's shares, which now stands at roughly four times. In the event of a broader market downturn, Etsy's stock could present an even more compelling valuation.

For those who invest with a long-term perspective, a market slump may offer an opportunity to buy strong stocks like Etsy at lower prices. Despite any economic challenges, Etsy's established brand, consistent site traffic, and ability to generate cash flow make it a stock to watch and potentially buy when market conditions falter.

Etsy, Investment, Downturn