Navigating the stock market to identify lucrative investment opportunities can seem like a daunting task for newbies. Turn on the financial news and you’re immediately inundated with talking heads discussing a wide variety of topics that don’t really apply to long-term investors.
Rather, what really matters is identifying large companies that have competitive strengths and significant growth opportunities that you plan to keep in your portfolio for many years to come. If you are looking to invest $ 1,000 today, look no further than Etsy (NASDAQ: ETSY), the online market for unique and artisanal products.
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Strong competitive advantages
When I first look at a potential stock purchase, I need clear evidence durable competitive advantage exist. These are rare qualities that allow a particular company to outperform its competition. In Etsy’s case, this takes the form of a network effect.
As of September 30, Etsy had 96.0 million active buyers (up 37.8% yoy) and 7.5 million active sellers (up 102.7% yoy) on its platform. form. A huge user base like this means that buyers benefit from a wide assortment of goods and services, while sellers have access to a large pool of potential customers. In other words, the more users Etsy attracts, the more valuable the entire platform becomes.
Etsy’s competitive positioning is reinforced by the fact that it offers users a truly differentiated value proposition. A 2020 business survey found that 88% of shoppers said they found items on Etsy that they couldn’t find anywhere else. And the company gives sellers the opportunity to pursue their own entrepreneurial ambitions by supporting their small businesses and providing them with a global audience.
In the last quarter, Etsy generated revenue of $ 532.4 million on gross merchandise sales (GMS) of $ 3.1 billion. Both figures rose 17.9%, adding to a monster performance in the quarter a year earlier when revenues soared 128.1% at the height of the pandemic.
A long track of growth
While Etsy has buyers and sellers in many countries around the world, management considers seven markets (US, UK, Canada, Germany, Australia, France, and India) as key geographies. In the third quarter, 42% of supermarkets were from outside the United States, up from 35% a year earlier.
According to management, Etsy’s total addressable market is $ 1.7 trillion. This figure was further enhanced by the acquisitions this summer of Depop, a global second-hand fashion site, and Elo7, Brazil’s Etsy. CEO Josh Silverman wants the company to become a “house of brands” – a complete shopping destination for all that is special and unique.
As Etsy continues to increase sales by strengthening its international presence, profitability will increase, thanks to the operational leverage inherent in the business model. Many of Etsy’s costs are largely fixed, like marketing and product development, so as revenue grows, net income skyrockets. Its profit margin fell from 19.8% in 2015 to 20.2% in 2020.
A significant decline
Since hitting an all-time high in late November, Etsy’s stock has reversed course, falling more than 25% in the absence of major news. I guess Etsy is moving at the same pace as many other fast growing stocks that have fallen back in light of fears over the Omicron COVID-19 variant and the effect it could have on the global economic recovery. And with inflation proving to be more sustainable than initially expected, the Federal Reserve’s potential decision to cut bond purchases at an accelerated pace could spook the market as well.
For long-term investors, recent price weakness like this can be seen as a buying opportunity. From a quality standpoint, Etsy is an exceptional company benefiting from the unstoppable growth of e-commerce. With $ 1,000 to implement, Etsy is a good investment.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.