Investors emerged from the pressure that the Etsy growth story is slowing significantly. Since then, they have been selling these valuable growth stocks in droves. Fortunately for bulls, the 2020 calendar for Etsy stock could be a completely different story.
Etsy's growth narrative slowed significantly in 2019 as sales growth rates slowed and margins came under pressure. This slowed growth converged with the highest valuation of the share in years and ultimately led to a significant underperformance of the Etsy share.
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However, Etsy's growth story will recover in 2020. Sales growth rates and margins will accelerate again. These favorable developments will converge with the currently lowest valuation of the share in years and ultimately lead to a clear outperformance of the Etsy share.
As a result, I like ETSY in 2020. In a sea of valuable growth stocks that went very far in 2019, very fast and appear to have limited upside potential in 2020, Etsy is a remarkable exception in every respect. It has the potential to perform excellently over the next twelve months.
The Etsy growth story will recover in 2020
In terms of sales growth, the Etsy sales growth rate slowed from almost 50% in 2018 to below 30% in 2019. This slowdown will end in 2020 and sales growth rates will stabilize between 25 and 30%. Area, for a couple of reasons.
First, U.S. consumer trends will pick up as the economy recovers, leading to higher e-commerce spending and higher Etsy spending. Second, trends in digital advertising spending will improve with economic improvements and provide a solid tailwind for Etsy's new advertising business to make it pick up momentum. Third, Reverb’s revenue should increase as Etsy normalizes the platform’s transaction fee to match its own transaction fee.
Profit margins, which fell nearly 100 basis points in the last quarter, are expected to increase again in 2020. The stabilization of sales growth in the area of over 25% will be accompanied by moderate cost growth in order to achieve positive operating leverage. At the same time, the advertising business is particularly profitable. With the upswing in 2020, advertising revenue should raise the company's margin profile.
The slower sales growth and the narrowing of margins at Etsy in 2019 will translate into accelerated sales growth and widening of margins in 2020. This shift from slow growth to recovery growth will support a strong rally at Etsy in 2020.
Etsy Stock will run over $ 50
My numbers suggest that Etsy stock will be well over $ 50 in 2020.
<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The company has consolidated its position as a niche specialty online – Retail market for all creative things, where buyers and sellers from all over the world can meet to buy and sell handcrafted handicrafts that you won't find anywhere else (Etsy survey data states that 78% of Etsy buyers say they buy products on Etsy that they won't find anywhere else. "data-reactid =" 39 "> The company has consolidated its position as a niche online retail market for creative things, where buyers and sellers from all over the world meet to buy and sell handcrafted handicrafts that you won't find anywhere else (Etsy survey data shows that 78% of Etsy buyers buy products on Etsy that they can't find anywhere else).
<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Sure, this market is not that big Retail spending on these "special" products is still substantial at around $ 100 billion, and Etsy owns only about 5% of this market, up 3% in 2016. This stock expansion will continue for the foreseeable future, largely thanks to the Tailwind in the introduction of e-commerce (global e-commerce spending is expected to increase many times over) Tempo over 15% for the next few years). In this case, Etsy is expected to see sales growth of 15 to 20%. "Data-reactid =" 40 "> Sure, this market is not that big, but it is still significant because all retail spending on these" special "products is tied up, which equates to a 3% share in 2016. This stock expansion will continue for the foreseeable future, mainly thanks to the tailwind in the introduction of e-retail (global e-commerce spending is forecast), in which case Etsy is expected to achieve 15-20% sales growth.
Over this period, cost growth will weaken as the company begins to use size and reputation to increase sales rather than marketing spend. Moderate cost growth in addition to sustained high sales growth will result in positive operational leverage and profit margins should increase.
Sales growth of 15% to 20% with simultaneous steady margin expansion should lead to profit growth of over 25%. As a result, my model sets the Etsy earnings potential for 2025 per share at around $ 3.50. Based on an industry-standard 22-fold forward earnings multiple, this implies a price target of 2024 for the Etsy share of USD 77. Less 10% pear year, this corresponds to a price target for 2020 of almost USD 53.
Conclusion of the ETSY share
The 2020 bull thesis on Etsy stocks is pretty simple.
The Etsy share had a bad year 2019. This underperformance enables the share to have a good 2020. What put a strain on Etsy stock in 2019 will reverse the course in 2020. That means sales growth rates will stabilize and margins will recover.
These positive reversals will be consistent with Etsy's lowest rating in recent years. This convergence will trigger a major 2020 rally in Etsy stock.
<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "At the time, Luke Lango was a long ETSY."data-reactid =" 51 ">At the time of writing, Luke Lango was a long ETSY.
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