Etsy (NASDAQ:ETSY) was a major pandemic winner, with ETSY stock ripping 740% from the March 2020 low to the high in March 2021.
For something to rally that far in just one year, I mean, we often have to wait a decade or more to see that type of return out of great stocks.
Case in point, Apple (NASDAQ:AAPL) is near its own all-time high. But in the last decade, the stock is up 940%.
While that’s a great return, look at how long it took the stock to generate those gains vs. the gains we see in Etsy. Yet, some still believe a return to the highs are possible.
Just as Etsy exploded higher, it dropped like a rock when the selling pressure came. Here’s the thing, though. This is a high-quality company that proved it’s not going to be disrupted by Amazon (NASDAQ:AMZN).
For all the fear that Amazon can create, it’s not the end-all, be-all for those in other businesses. Just because Amazon comes at Etsy with Amazon Homemade, doesn’t mean the latter will thrive and the former will die just because Amazon is a behemoth.
When it comes to high-quality businesses, stocks can often come with volatility. That’s as true for Apple as it is for Etsy and many others. In these scenarios, I like to look for pullbacks of about 40% to begin allocating funds to these great businesses.
At the height of the bear market decline in growth stocks, Etsy stock was down 38.9% when it bottomed with its peers in early May.
Since then, we’ve seen a 42.5% rally back toward the $220 level, where Etsy currently trades. While that’s about in line with analysts’ consensus price target, a recent price-target boost points to more potential upside.
Evercore ISI bumped its price target to $250 from $215. The argument fell along the lines of, “the online retailer should be able to sustain healthy buyer growth and purchase frequency trends, as well as expand EBITDA margins in the long term.” Further, “Etsy’s buyer purchase trends will stay strong with masks or no masks.”
If Etsy were to get to $250, it would leave it a hair short of the all-time high, at $251.86. But it would represent a gain of about 14% from current levels.
Can Etsy Stock Get There?
I love the way Etsy stock pulled back to the $155 breakout area and held this zone as support. Further, note how the 50-week moving average was strong support, not just in May but from that point on.
I don’t want to say, “forget the 200-day moving average,” but clearly the support mark to watch is the 50-week.
On the upside, Etsy did a nice job powering through the $206 level, as well as the 61.8% retracement. On the recent dip, the $206 breakout area held as support. Now dipping to the 21-day moving average, let’s see if Etsy can push through notable resistance at the $225 to $230 area.
Above that opens the door to Evercore’s $250 area.
On the downside, a break of the 21-day moving average puts the $206 area is back in play, along with the 10-week and 50-day moving averages. Below those marks puts the key 50-week moving average in play. Keep that in mind.
Final Thoughts on Etsy
Much like many other growth stocks, Etsy experienced a major “pull ahead” in its business. That’s as e-commerce sales accelerated in the face of Covid and as more customers moved from in-store purchases to online purchases.
In October, consensus revenue estimates for this year stood at $1.5 billion. Now estimates call for roughly $2.3 billion in revenue, an increase of more than 50% in just under a year.
But get this: At the start of 2020 — so before the pandemic — consensus revenue estimates for fiscal 2021 stood at just $812 million. We’re at roughly triple that estimate now! So the pull-forward in business has been robust to say the least.
Better yet, analysts expect 32% revenue growth this year and 20% growth next year. The company is also profitable, while consensus estimates call for double-digit bottom-line growth in each of the next two years as well (with estimates calling for an acceleration in 2022). Etsy is also free cash flow positive.
Put it all together and it’s clear this high-quality growth stock isn’t done yet. Instead, the question comes down to how growth stocks and e-commerce stocks will perform in the short term.
Just keep the technicals in mind. Over $230 and $250-plus is possible. Below $200 and the 50-week moving average has been our rock of support. And if you’d like, feel free to keep the down-40% process in mind.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.