January 15, 2021

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Two traders’ Etsy earnings lookahead


Executives of Etsy applaud as they open the Nasdaq MarketSite ahead of Etsy’s initial public offering in New York, April 16, 2015.

Michael Nagle | Bloomberg | Getty Images

Etsy’s stock is soaring ahead of earnings.

The online retailer, which is scheduled to report its second-quarter results after Wednesday’s closing bell, saw its shares surge more than 4% to a new all-time high of $136.29 ahead of the announcement. The stock is up nearly 14% week to date and about 204% for the year, boosted in part by face mask sales on its platform, according to its CEO.

The action suggests investors are bullish on the stock heading into earnings, but two traders suggested steering clear.

“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 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 was up nearly 4% at $134.39 at the time of this writing.

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