Etsy (NASDAQ:ETSY) has had a bit of a resurgence in the past week with Etsy stock gaining 8.4% through Dec. 20. That’s the good news.

The bad news is that Etsy stock is down 27.1% in the last three months and off 7.4% for the year. In the past 52 weeks, ETSY has traded as high as $73.34 (early March) and as low as $39.76 (early December).

Heading into 2020, investors are left to wonder if it’s a $40 or $70 stock.

Here’s a look at both sides of the argument.

ETSY Is a $40 Stock

Morgan Stanley analysts Lauren Cassel and Brian Nowak recently downgraded Etsy stock to “underweight” from “equal-weight” while also cutting its 12-month price target 27% from $52 to $38.

The analysts feel the e-commerce site that specializes in the sale of handmade and vintage items has a number of headwinds as it enters 2020.

“Sales tax and Etsy ad headwinds could more than offset free shipping benefits. A shorter holiday calendar and algorithm changes are two other 4Q risks,” the duo wrote in a note to clients. 

“While we like ETSY’s business model and competitive moat it has established, we now anticipate slowing core GMS growth to result in negative top-line and EBITDA revisions, likely leading to additional multiple compression.”

Translation: The 24% year-over-year gross merchandise sales (GMS) growth through the first nine months of fiscal 2019 is not sustainable. As a result, the company will have to revise sales projections lower for 2020. In addition, adjusted EBITDA profits will also shrink.

Let’s assume the company’s fourth-quarter GMS growth is 20% and its revenue growth is 35%. Based on these growth assumptions, it will finish fiscal 2019 with $4.8 billion in GMS [Q4 2018 GMS of $1.25 billion multiplied by 20% plus $3.32 billion in the first nine months of 2019] and $818 million in top-line revenue [Q4 2018 revenue of $200.03 million multiplied by 35% plus $548.38 million in the first nine months of 2019]. 

ETSY stock currently trades at 7.5 times sales. Assuming its P/S multiple contracts 20% in 2020 to 6x, the company’s market cap would fall to $4.9 billion from its current $5.6-billion valuation.

That’s a 12.5% drop from current prices to just less than $39.  

It’s Worth $70

Interestingly, despite the Morgan Stanley analysts being down on Etsy stock, most of the InvestorPlace contributors who’ve written about the crafty company in recent weeks, are for the most part complimentary. 

Aaron Levitt believes Etsy’s strong branding and prominent position in the handmade goods space make it an inevitable M&A target. He suggests Amazon (NASDAQ:AMZN), eBay (NASDAQ:EBAY) or even Target (NYSE:TGT) could be possible suitors.

If my colleague’s prediction comes to fruition, the fact that Etsy is profitable means any buyer will have to pay a significant premium to win the day. I’m not sure that gets ETSY to $70, but if it maintains the momentum of the last month, it could get most of the way there.

InvestorPlace’s Luke Lango recently suggested that Etsy is trading at its most attractive valuation in years.

“The culprit behind the recent selloff is temporary in nature. That is, ETSY stock dropped big because of declining take-rates and margins in its most recent earnings report, but these declines stem from the integration of recently acquired Verbo into the financial results (which runs at lower take-rates and margins),” Lango wrote Dec. 2.

“This acquisition-related noise will fade in 2020, and take-rates and margins will improve again.”

The Bottom Line on Etsy Stock

I must admit I haven’t followed Etsy as closely as I probably should have given it does have a great business model. However, you can’t follow them all.

At this point, I would say that Etsy stock has lost plenty in 2019, making a purchase at current prices a reasonably strong idea.

That said, I’d definitely keep an eye on the headwinds mentioned at the outset. You don’t want them to come back to bite you in the posterior. 

Happy Holidays!

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