By Neil Patel
It's not that uncommon to see what used to be the best investment
opportunities eventually turn into the worst. This e-commerce
enterprise's shares rocketed 2,160% higher during the five-year period
leading up to their peak in November 2021. Since that record was
achieved, though, they've crashed 82% (as of March 18).
Has this become a top undervalued growth stock to buy in 2026?
Image source: Getty Images.
A past winner has become a loser
Etsy (ETSY)
used to be one of the hottest growth stocks in the market. Between 2016
and 2021, its revenue increased at a compound annual rate of 44.9%,
driven by robust online shopping activity before and during the depths
of the COVID-19 pandemic. It went from a $30 million net loss to $494
million of net income during that time.
To say that the company's growth has underwhelmed in recent years
would be putting it lightly. Consumer behavior has normalized since the
health crisis lockdown. And economic conditions have created a turbulent
environment, with inflationary pressures and general macro uncertainty
on the minds of shoppers.
Etsy's core marketplace registered gross merchandise sales (GMS) of
$10.5 billion in 2025. It appears to have stabilized, as management
believes this metric will grow a bit in 2026. That's encouraging.
However, this doesn't take away from the fact that last year's GMS
total was 14% below the number from 2021. Etsy's allure with buyers and
sellers has steadily weakened over the past half-decade or so. This has
pressured earnings.
There's a new CEO, Kruti Patel Goyal, running the show. Her focus should
be to return to sustainable GMS growth. But she certainly has her work
cut out for her. Etsy is facing an uphill battle to drive more spending
activity on the platform.
This consumer discretionary stock is deservedly cheap
With shares down so much in the past few years, investors are correct
in assuming that Etsy's current valuation is cheap. After all, this consumer discretionary stock trades at near an all-time low price-to-sales multiple of 2.2.
Etsy's current valuation is warranted. The company has struggled for
several years, calling into question its value proposition. The previous
CEO also burned shareholder capital with expensive acquisitions of
Depop, Reverb, and Elo7, all of which have been sold off.
For what it's worth, Etsy still possesses a network effect, as it has
93.5 million buyers and 8.8 million sellers across the globe who
support its two-sided ecosystem. Additionally, Etsy's specialized and
creative merchandise offerings help it stand out in the retail sector.
This competitive positioning at least buys the company time to get its
finances in order.
But the smartest investors are avoiding Etsy stock right now. Until
the business can return to durable revenue and profit growth, its stock
isn't deserving of a buy recommendation.
Should you buy stock in Etsy right now?
Before you buy stock in Etsy, consider this:
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Etsy. The Motley Fool has a disclosure policy.
This article was first featured on The Motley Fool
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