Etsy’s stock is soaring.
The online retailer’s stock surged to a new all-time high of almost $142 per share in Wednesday’s after-hours trading session in response to a blowout second-quarter earnings report. It later retreated to around $138.
Etsy delivered earnings per share and revenue results well above even analysts’ highest estimates, driven by a triple-digit rise in gross merchandise sales. The stock is up 17% week to date and about 212% for the year counting the after-hours moves. Spiking face mask sales on Etsy’s platform are a partial driver, according to its CEO.
Two traders suggested steering clear of the stock for now despite the bullish action.
“This stock checks every box that investors in this environment are loving,” John Petrides, portfolio manager in the wealth division of Tocqueville Asset Management, told CNBC’s “Trading Nation” on Wednesday.
Not only is Etsy an e-commerce platform, but it also has low capital expenditures, boasts a healthy cash-to-debt ratio and offers a way for some who are unemployed to make some extra cash, all of which have helped drive the stock to records, Petrides said.
“But for me, the valuation’s a little bit too rich, trading at 100 times earnings, 50 times operating income, 10 times next year’s sales,” he said. “So, I’d be avoiding this stock here. Let’s see what they have to say on the call. I would expect the environment is set up for them to have fantastic earnings numbers, but I’d be waiting on the sideline to hear what management has to say.”
Mark Newton, founder and president of Newton Advisors, was also steering clear.
“I think it’s a great stock, but it is quite parabolic here after almost a 35% run in just the last two weeks alone,” he said in the same “Trading Nation” interview.
“You look at things like momentum, which has gotten really stretched based on [Relative Strength Index] readings in the high 70s on weekly charts, starting to diverge on a daily basis,” he said, pointing to the stock’s weekly chart.
“My thinking is the next four to six weeks should bring about some consolidation,” Newton said. “So, I don’t really like owning it into earnings given that it’s had such a huge run of late.”
For intermediate to long-term investors, however, “it is typically right to hold and simply use dips to buy,” he said.
It’s “almost always better to wait for evidence of this starting to rollover,” he added in a note published later Wednesday. “Pullbacks into late [September] would be used to buy dips for likely further gains higher.”
“It’s been such an explosive move off the lows and it’s not usually right to sell something hitting new all-time highs, but a lot of it just depends on your time frame and your risk tolerance as an investor,” Newton said.
Etsy closed up almost 4.5% at $135.52 on Wednesday.
