Etsy (NASDAQ:ETSY) has done a fantastic job turning around its business. The crafts e-commerce portal looked close to busted three years ago. But after a 2017 management shake-up, a new CEO and team has made all the difference. Investors have noticed, driving the ETSY stock price from under $10 at the beginning of 2016 to nearly $50.

There’s a lot to like here. I made the case for Etsy stock back in June, after the company raised merchant fees. Tracey Ryniec led our Best Stocks for 2018 contest with ETSY stock. The platform has proven to be one of the few companies that can successfully can take on Amazon.com (NASDAQ:AMZN). Goldman Sachs (NYSE:GS) upgraded the stock on Friday, fueling an 8% jump in the ETSY stock price.

The gains in Etsy stock are well-deserved, with more benefits from the fee hikes on the way in 2019. Still, I’m not sure how much is left. As Luke Lango pointed out back in November, ETSY stock has failed to hold $50 too many times. It happened again last month.

Even assuming strong growth next year, valuation is stretched. And at this point, usually bullish analysts see just 13% upside in the Etsy stock price over the next year.

It’s possible ETSY shares will continue to gain. In fact, forced to choose, I’d bet they will. But in a nervous market, it seems likely a better price might be on offer soon — or that other tech growth stocks might prove better choices.

The Case for ETSY Stock

Again, it’s not particularly difficult to develop the bull case for Etsy as a business. Growth has accelerated of late, rising from below 20% in the first half of 2017 to 30% in the second quarter of 2018 and then a pricing-aided 40% in Q3.

As often is the case with ‘platform’ companies, margins have skyrocketed as a result. EBITDA margins in the first half of last year were under 10%; post-Q3 guidance suggests something like 24% in the last two quarters of this year.

Per management commentary after Q3, the hike in merchant fees from 3.5% to 5% hasn’t led sellers to exit. And Etsy is reinvesting some of that revenue in areas like television advertising, which should further drive GMS (gross merchandise sales). First-half results next year — both revenue and profits — will benefit from the higher fees, potentially further boosting the ETSY stock price.

And while Etsy clearly has strengthened its platform, there’s still room for improvement. Some 60% of active buyers, according to the company’s most recent presentation, only shop once a year. Driving more repeat business can drive further growth. The company estimates it has just 2% market share in online spend in major categories in its geographies, creating a long runway for increasing share, revenue, and margins. There’s room for further geographic expansion as well, whether into Europe or Asia.

There’s a strong growth story here. And with the recent increases in revenue and GMS coming despite the launch of rival Amazon’s Handmade, Etsy seems to have cemented itself as the leader in the online craft space.

The optimism around the stock makes some sense. So does the ~400% rise in the Etsy stock price. Meanwhile, that growth would seem to set up the company — and the stock — for even better results in the coming years.

The Case for Caution

To be sure, I’ve made the bull case for ETSY stock twice in the past six months. But both times, the Etsy stock price was in the low $40s. At $50, the case gets a bit more difficult.

For one, ETSY stock isn’t cheap, or close. Even assuming a strong 2019, with adjusted EBITDA up 30%+ from this year’s ~$135 million, Etsy trades at something close to 30x EBITDA. Backing out cash, the forward P/E multiple is in the range of 60x+.

Admittedly, this is a business that should grow for some time. But growth is going to slow. Comparisons next year are much more difficult. EBITDA margins should be in the 25%+ range once the fee hikes are lapped in early Q3. Incremental gains from that point simply have much less in the way of impact than they did when those margins were in the single digits.

Etsy can grow into its valuation, certainly. But a lot of its potential looks priced in. Again, even Street analysts, who often overshoot on valuation, see less than 15% upside. Meanwhile, the last couple of months show that ETSY can sell off quickly if the market turns. Just since the beginning of October, ETSY already has had three 20%+ pullbacks.

Is ETSY the Play?

That raises another question. Is ETSY stock the play for this kind of market? There’s no shortage of tech growth stocks trading well off previous highs. I’ve argued Netflix (NASDAQ:NFLX) is the best contrarian tech bet out there, and even with a recent bounce I still think that’s the case.

Square (NYSE:SQ) has a phenomenal growth story of its own — and a similar ‘unique small business’ type of market — and still is down 40%+ from its highs. Admittedly, those highs look ludicrous in retrospect, but at a more reasonable valuation SQ stock could be intriguing.

Whatever an investor’s individual favorite, there are tech stocks out there that have sold off more than ETSY and potentially have more upside if broad market sentiment improves in 2019. As the Goldman upgrade shows, Etsy isn’t exactly an underappreciated, or misunderstood, story at this point.

That doesn’t mean it’s a bad story. In fact, it’s the opposite: Etsy has done a phenomenal job. But the market has figured that out, and moved the ETSY stock price accordingly. At this point, growth investors would do well to find stories that aren’t as obvious — or companies that perhaps have much more room for improvement.

As of this writing, Vince Martin has no positions in any securities mentioned.