Shares of Etsy, Inc. (NASDAQ: ETSY) dropped steadily following its 2015 initial public offering (IPO). The company priced its IPO at $16 per share on April 16, 2015. The share price quickly shot up to $31 and then started a precipitous decline that continued into 2016. After closing at a low of $6.90 on February 8, 2016, Etsy stock climbed slowly over the following two years and was trading at $25.65 on February 28, 2018. 

Company Overview

Etsy is a peer-to-peer e-commerce website where users buy and sell mostly handmade crafts, vintage items, art and photography. It works like a cross between Amazon and eBay but with a focus on unique items as opposed to mass-produced merchandise. The site launched in 1998 and grew steadily over the first decade of the 21st century. The company made its one-millionth sale in 2007, and in 2008 received $27 million in venture capital money.

The company announced its IPO in March 2015 and officially went public on April 16 of the same year. After a brief initial surge, the stock began declining, and by mid-June it had fallen below the IPO price of $16 per share.

Analyst Matthew Frankel at The Motley Fool ranks Etsy as the worst IPO of 2015. Though the company is still adding users and enjoying robust revenue growth, its earnings were negative in 2015. Moreover, rival Amazon's handmade section, a new offering for 2015, represents a potentially strong competitive threat to Etsy.

How a Day Three Investment Would Have Fared

One way to determine if you should have invested in a company early is to put yourself in the shoes of an investor who got in shortly after an IPO.

If you had invested in Etsy stock on day three, you would have been sitting on a sizable loss as of January 2016 but would have recouped your money by the end of February in 2018. 

The IPO price was $16, but shares were trading above $30 by the end of the first day. The decline began in earnest on day two. On Etsy's third trading day, April 20, the stock opened $28.77 and closed at $24.90.

Assume you purchased your shares toward the end of day three when they were trading at $25. If you had purchased 100 shares, your initial investment would have been $2,500. Over the ensuing nine months, you would have watched and winced as that total steadily declined. As of mid-January 2016, Etsy shares traded for under $7 and your investment would be have been worth under $700. If you had held onto the stock, it would be worth slightly more than $2,500 as of February 28, 2018, or nearly exactly what you invested in the first place. 

There Is Still Hope

Investing is a long-term proposition, and Etsy does not have nearly a lengthy enough track record as a public company for anyone to make an accurate judgment about the stock's long-term prospects. On a 20- or 30-year chart, nine months or even two years represents a tiny blip of time. Less than a year of bearish movement could be part of a larger trend, or it could just as easily be a temporary drop for an otherwise bullish stock. Therefore, a long-term investor who took a chance on Etsy after the IPO would be unwise to dump it now simply because it has not lived up to expectations thus far.

Look at the graph of any stock that has appreciated over a long period and it rarely, if ever, shows an uninterrupted upward march. Even the most bullish stocks rise in a zig-zag pattern, the long zigs representing price appreciation and the shorter zags indicating temporary pullbacks and corrections. Fundamental analysis of a company through its financial statements and its annual and quarterly reports provides a better picture of its stock's long-term prospects versus examining months of price movements.

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.