Are Netflix and Etsy Stock Buys?

MarketsMotley Fool

Shares of streaming-TV company Netflix (NASDAQ: NFLX) and online marketplace Etsy (NASDAQ: ETSY) are both soaring Friday following a bullish note from Goldman Sachs analysts (via Barron's). The analysts gave shout-outs to Netflix and Etsy as the firm noted that internet stocks are looking compelling after a sharp broader-market pullback in the fourth quarter of 2018. Shares of Netflix and Etsy were up 8.3% and 9.2%, respectively, as of 12:35 a.m. EST.

Here's a look at why Goldman has an optimistic view for both of these stocks, as well as some additional analysis on each.

Continue Reading Below

Netflix

"We believe Netflix represents one of the best risk/reward propositions in the Internet sector," said Goldman about the stock. Highlighting Goldman's bullishness on the stock, the firm added it to its America's Conviction List and maintained its buy rating.

Shares of Netflix were slammed in the second half of 2018, falling 36% between highs achieved last July and the end of the year. With the streaming-TV company's earnings per share soaring as Netflix's stock price declined, the company's price-to-earnings ratio dropped sharply. Today, Netflix trades with a P/E of 105, compared to a P/E close to 300 last summer.

Of course, Netflix's P/E still prices in significant earnings growth over the coming years. But its 185% year-over-year increase in earnings per share for the trailing-nine-month period ending Sept. 30, 2018, highlights the company's ability to deliver uncanny earnings-per-share growth.

Etsy

The market may be underestimating the impact of Etsy's move last year to increase the fees it charges sellers on its platform, according to Goldman analysts. Goldman upgraded the stock from a neutral rating to a buy rating.

Etsy impressed investors in November when it reported better-than-expected earnings per share for its third quarter. The outperformance was driven by Etsy's higher seller fees, which allowed the company to increase investments in marketing and growth opportunities. Shares surged about 26% after the report.

Despite the market's optimistic response to Etsy's third quarter, shares still finished the fourth quarter of 2018 down 5% as a broader-market sell-off pressured Etsy's stock price. Of course, the jump in Etsy's stock price on Friday means shares are now up more than 1% since Oct. 1 of last year, crushing the S&P 500's 13% decline during this same time frame.

Etsy's new pricing structure, which charges sellers 5% of sales instead of a previous fee of 3.5% of sales, could be a boon to Etsy's top- and bottom-line growth while enabling the company to reinvest in its business more aggressively.

10 stocks we like better than NetflixWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Netflix wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of November 14, 2018

Daniel Sparks owns shares of Netflix. The Motley Fool owns shares of and recommends Etsy and Netflix. The Motley Fool has a disclosure policy.