When we wrote about Etsy in the summer of 2021, the company was on its way to make $3.4 in earnings per share that year. The stock reached an all-time high of $307.75 in November following a phenomenal pandemic surge from the $30s in March, 2020. The narrative at the time was that we were all going to evolve into internet monks, who spend the rest of their lives indoors and only go shopping online.
Two painful years later, in November, 2023, Etsy fell below $60 a share, down by four-fifths from its record. The pandemic is in the rearview mirror and people are travelling and shopping at the mall just like before. In the meantime, Etsy is on track for over $4.6 in EPS this year. In other words, the company is 36% more profitable, while its market value has fallen by 80%.
Sometimes the market will find a good story to be a lot more important than solid business development. Go figure. Fortunately, that’s what we have Elliott Wave analysis for. It helped us stay realistic and warned us not to trust the bulls near $300 a share two years ago. Let’s take a fresh look at that July 2021 chart.
Back in mid-2021, Etsy was on the verge of drawing a five-wave impulse pattern, labeled I-II-III-IV-V. Waves I-through-IV were already in place, so it made sense to expect a new record in wave V near $300. Unfortunately for the bulls, the theory states that a three-wave correction follows every impulse. We actually thought that the bears were likely to cut the stock in half, once wave V was over. Apparently, our thinking wasn’t even bearish enough…
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Just by looking at the chart above, someone may get the impression that Etsy is going bankrupt. But Elliott Wave analysis now suggests we shouldn’t put too much faith in the bears, either. The stock’s daily chart reveals a complete 5-3 Elliott Wave cycle. The crash from nearly $308, albeit a very deep one, looks like a textbook A-B-C zigzag retracement.
According to the theory, once wave C is over, the preceding uptrend can be expected to finally resume. While it is next to impossible to tell where exactly the bottom of wave C will form, Etsy looks rather cheap already. The stock trades at a TTM P/FCF ratio of 11, not to mention that the company keeps growing, although not as fast as it once did. The irony is that those who liked Etsy at $300 in 2021 don’t like it now at $60. Well, we do.
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