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Etsy, Inc. (ETSY): Worst-Performing Growth Stock in 2024
We recently compiled a list of the 10 Worst-Performing Growth Stocks in 2024.In this article, we are going to take a look at where Etsy, Inc. (NASDAQ:ETSY) stands against the other Worst-Performing Growth Stock in 2024.
Economic Growth and Market Resilience
Economists anticipate modest US economic growth in the upcoming quarters, and some continue to caution that a mild recession could occur. If high interest rates have a lagging negative effect on American consumers, it might be challenging for investors to locate reliable growth stocks to purchase.
Nevertheless, analysts at UBS are confident that the upward trajectory in the equity market is poised to continue amid the uncertainties regarding the US election and soaring geopolitical tensions in the Middle East. The strategists led by Jonathan Golub have already raised their S&P 500 target to 6,400 from 6000 on the belief that the US economy will remain resilient and supportive of the equity markets.
The Swiss bank expects the interest rate cuts by the Fed to be supportive of the economy, therefore fueling a 3.7% nominal growth in 2025. Likewise, the rate cuts should lower interest expense on borrowed capital and, in return, the default risk, which should add to earnings per share and valuations
“Valuations typically expand when the Fed cuts in non-recessionary environments,” the strategist said on October 15 in an interview with CNBC. “Despite elevated valuations, we expect P/Es to rise [half a] multiple point.” Golub also noted that a “sharp decline in Fed Funds will likely increase profit margins by 20 [basis points] via lower interest expense.”
Growth Stocks and Investment Strategies
Since the start of 2023, growth stocks have beaten value stocks, and investors expect this trend to continue as the Fed eases monetary policy to steer the economy into a soft landing. Over the past few years, the bull market has affected stocks in various industries differently. Some have rallied, generating significant returns, while others have lagged their core business and earnings, having come under pressure.
The best growth stocks can beat the stock market and give investors sizable returns regardless of the prevailing economic conditions. That has been the case as some have posted robust revenue growth higher than that of most of their peers, and the catalysts indicate that the growth may continue.
Some of the growth stocks that have exploded in value have received a lift from the economy, remaining resilient, while others have benefited from the artificial intelligence frenzy. Even as investors eye opportunities around AI plays, Morning Star’s chief market strategist Dave Sekera, believes it might be time to reconsider that investment strategy.
“In our 3Q 2024 Stock Market Outlook, we reviewed why we thought the AI trade had run its course and investors should pare down positions in growth stocks and reinvest those proceeds into value stocks. As detailed in our August 2024 Outlook, it appears that the great rotation into value stocks began in July—and still has further room to run. According to our valuations, on both an absolute as well as a relative basis, value stocks remain the most attractive category by style,” said Sekera.
Nevertheless, some growth stocks have fallen behind after a few successful years. The stocks are down year to date, having felt the full brunt of high interest rates and inflation. Some have underperformed as investors question their long-term prospects due to soaring competition in their respective sectors. While other growth stocks’ core business has come under pressure amid the proliferation of advanced technology that is eating into their respective core fields
To determine which stocks are the best to purchase right now, investors must distinguish between these assets. In addition to providing a solid foundation, this list of growth stocks may enable you to outperform the market.
Our Methodology
To compile our list of the worst-performing growth stocks in 2024, we started by gathering stocks from various growth stock ETFs. We filtered these stocks based on their share price drops, creating a list of twenty companies. Finally, we ranked these companies in ascending order according to their share price drops year to date.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Etsy, Inc. (NASDAQ:ETSY) is an online company that runs an ecommerce platform. This platform connects sellers with buyers. Because of its unique digital engineering capabilities, it enjoyed tremendous growth during the post-pandemic wave of digital transformation. Fast forward, it is one of the stocks that has been battered by consumer purchasing power, taking a hit amid high inflation and the high interest rate environment. Consequently, the stock has shed more than 40.01% in market value, emerging as one of the worst-performing growth stocks in 2024.
An unfavorable macroeconomic climate, characterized by a slowdown in consumer discretionary spending and growing industry competition from both large-scale marketplaces and niche platforms, is to blame for Etsy, Inc. (NASDAQ:ETSY)’s poor performance.
Additionally, the stock has been under pressure after mixed second-quarter results that raised concerns about the company’s underlying fundamentals. While revenue increased 3%, surpassing estimates at $647.8 million, earning missed estimates on coming in at $0.41 a share. Additionally, the online retailer reported a 2.1% decline in consolidated gross merchandise sales and a 3.2% drop in Etsy, Inc. (NASDAQ:ETSY) marketplace GMS.
The company’s decision to revise its third-quarter gross merchandise sales, driven by stiff competition and mixed consumer trends, highlights the growth challenges facing the online retailer. Additionally, the company anticipates a decline in GMS for the fourth quarter.
The company is already looking ahead and planning to refine its business model. It has started optimizing its apps, websites, marketing, and operations to boost gross merchandise sales. Etsy, Inc. (NASDAQ:ETSY) is also utilizing artificial intelligence tools to help shoppers find the right products on its e-commerce platform, thereby enhancing the shopping experience.
In the second quarter, 36 hedge funds included Etsy, Inc. (NASDAQ:ETSY) in their 13F filings, collectively holding stakes valued at $1.2 billion.Elliott Management was the largest shareholder, holding 4.50 million shares.
Overall, ETSY ranks 5th on our list of 10 Worst-Performing Growth Stocks in 2024. While we acknowledge the potential of ETSY as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ETSY, check out our report about the cheapest AI stock.
