1 Tremendous growth stocks that could go higher in 2024 fall 66%

Many growth stocks surged last year, pushing the three major indexes higher, but some blue-chip companies sat on the sidelines. And one of those promising players is Etsy (ETSY 2.08%), an e-commerce company that connects sellers and buyers of handmade products. In fact, the stock price has fallen about 66% over the past three years.

Investors were worried that customers watching their wallets would delay making discretionary purchases amid soaring inflation, and these cautious investors weren’t entirely wrong. Etsy has recorded quarterly gross sales (GMS) declines through 2022 and last year. But things have started to brighten up recently, and Etsy’s long-term prospects look promising. These two factors could help this massive growth stock climb higher in 2024. Let’s find out more.

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Etsy’s early pandemic performance

First, let’s take a brief look at the past. Etsy’s revenue soared early in the pandemic as shoppers turned to e-commerce, and its stock price rose as a result. Then, several factors began to hinder its earnings and stock performance. Customers have returned to their usual buying habits, including in-store shopping. This means increased competition from e-commerce companies like Etsy. As mentioned above, rising inflation is starting to erode shoppers’ purchasing power. And finally, other headwinds, such as negative foreign currency impacts, hindered revenue growth.

However, it’s important to note that even through these challenges, Etsy maintained the gains it made early in the pandemic, even during times of declining revenue. For example, in its most recent quarter, Etsy reported double-digit four-year compounded annual growth rates for GMS, revenue, and adjusted EBITDA.

And today, Etsy is reporting a variety of “green shoots” that could signal future growth. The company’s GMS increased 1.2%, an improvement over the 0.6% decline in the previous quarter. Active buyers increased 4% to an all-time high of 92 million. This is up from a 3% increase over the past three months.

At the same time, a look at the state of the economy suggests that pressure on consumers may be starting to increase. Analysts predict the Federal Reserve will stop raising rates and even cut rates later this year after raising rates 11 times since 2022. This will ultimately benefit companies like Etsy that rely on consumer spending.

Now let’s consider Etsy’s long-term prospects. Etsy had been growing its business significantly even before the pandemic, posting $3 billion in GMS and $87 million in net income in its most recent quarter. However, market growth opportunities remain significant. Etsy only has a 2.5% share of the $466 billion market.

Etsy’s Market Share Efforts

Etsy aims to increase market share by increasing the number of active buyers, purchase frequency, and purchase value. We’re working to address this by improving our search capabilities to make it easier for buyers to find the right item, and prioritizing good value and reliability.

Lastly, another big thing I like about Etsy is the company’s capital light business structure. Etsy doesn’t need to make large investments in areas like infrastructure or transportation. The seller stocks and ships the goods. This means that Etsy can convert 90% of its adjusted EBITDA into free cash flow. Additionally, the company has $1.1 billion in cash, making its financial picture brighter.

Meanwhile, Etsy stock currently trades at just 14 times forward earnings estimates, which is an absolute steal considering the company’s business model, its revenue progress thus far and its financial strength despite a difficult economic environment. This means bargain investors looking at a solid long-term growth story could flock to Etsy today and in the coming months. And if that happens, this top-tier growth company could finally soar higher in 2024 after several years of slump.