Etsy Stock’s Rally Could Slip If Earnings Beats Moderate, Says Analyst

Etsy stock is falling early Monday, on the heels of a downgrade from Keybanc, which argues that the online marketplace’s monster rally could be harder to sustain if the company doesn’t turn in blowout earnings.

Analyst Edward Yruma lowered his rating on Etsy (ticker: ETSY) to Sector Weight from Overweight on Monday. while removing his price target.

The move comes after Etsy rocketed some 876% since he first went bullish on the shares in December 2017, while the Nasdaq Composite has gained just over 100% in the same time frame. Etsy’s multiple has expanded as well, and while some of that is justified, given the company’s “highly effective management team,” he thinks the shares look fairly valued now.

Etsy is slated to report first-quarter earnings on May 5, and the company’s prior results, released in February, were well ahead of expectations. Yruma notes that the fourth-quarter beat was one of the biggest in his coverage and that consensus estimates look “reasonable” in the next few quarters. However, he writes that “the magnitude of earnings beats could moderate,” which could make it harder for the shares to keep climbing.

That said, he still believes that Etsy is “one of the best long-term growth opportunities in our coverage,” so it’s not surprising that the stock should be awarded some premium. He points to non-mask sales growth in 2020, which demonstrates that the company is concerting more people into habitual buyers, and notes that rival Amazon.com’s (AMZN) Amazon Handmade is “unlikely to gain momentum.”

Etsy stock is down 1.9% to $210.58 at a recent check. The shares are up more than 18% year to date and have jumped more than 200% in the latest 12 months.

Other analysts have worried that Etsy could be impacted by higher tax rates, given that it gets a third of its revenue overseas and has one of the lower tax rates in tech.