By Paul R. La Monica

President Donald Trump is cracking down on cheap Chinese imports from popular e-commerce sites, which could be bad news for Shein, Temu owner PDD Holdings, and AliExpress parent Alibaba.

It could also mean a windfall for Etsy. Shares of the online marketplace for collectible and homemade goods rose more than 3% Wednesday and are up nearly 5.5% this year.

Investors may be betting that Trump's tariffs on China will lead to fewer imports of so-called "de minimis" items, goods that cost less than $800, which were previously allowed to enter the U.S. duty free. Trump has eliminated that exemption.

Anything that slows the flow of Chinese products to U.S. retailers is a plus for Etsy. It has happened before.

Etsy CEO Josh Silverman said at a Needham & Co. investing conference last November that there was a tiny amount of inventory coming onto the Etsy platform from China. As such, he didn't expect tariffs to hurt it.

He added that when there were major supply-chain issues in China in 2022 following the pandemic, that was a positive for the company as well.

"All the products from China were stuck on a boat. Nothing could get to our shore easily and it was a real tailwind for Etsy. Etsy really flourished in that environment," he said.

It could flourish again. Naved Khan, an analyst with B. Riley Securities, said in a report Monday that "a tariff-driven increase in import prices of goods sold on competitor marketplaces could lead to reduced promotional intensity and/or ad spending by these players, which could be incrementally beneficial to Etsy."

Khan added that U.S.-based home furnishings retailer Wayfair, another competitor to Etsy, may also be hit by the tariffs. He estimates Wayfair has about 15% to 20% of sales exposure to goods made in China.

Analysts at Bank of America Securities also think Etsy could get a boost from anything that makes life more difficult for its competitors.

"Etsy could see a relative benefit if others see disruption to their supply chain or prices," they wrote Monday.

The BofA analysts added that Chewy, the leading online pet supplies retailer, might be the best-positioned e-commerce company to deal with any tariffs given that pet food and pharmaceutical manufacturing is largely based domestically. Chewy shares are up nearly 13% this year.

But Etsy, trading at about 22 times 2025 earnings estimates, is a much better value than Chewy, with a price-to-earnings ratio of more than 75 times this year's profit forecasts.

Investors may be underestimating Etsy. The stock typically trades at a P/E ratio twice the S&P 500's. But it is now trading roughly in line with the market multiple. And Etsy's bottom line is expected to continue growing at a healthy clip, with analysts forecasting nearly 15% annual increases in earnings per share for this year and 2026.

Of course, the big macro risk is that tariffs (and higher prices for many goods) may lead consumers to cut back their spending. But as long as Americans keep shopping, they are likely to look for bargain goods.

There is a better chance they'll find them at Etsy as opposed to Temu and Shein -- unless China agrees to some sort of trade deal with Trump as quickly as Canada and Mexico did.

Write to Paul R. La Monica at paul.lamonica@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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February 05, 2025 13:12 ET (18:12 GMT)

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