Poshmark (NASDAQ:POSH) is looking like a decent buying opportunity right now, given how far POSH stock has fallen lately. In the past month, it is down over 30% as of March 26 at $39.64. It’s down $61.84 or 60.9% from its first day trading close (Jan. 14) of $101.50, and down from the IPO price of $42.

The stock is also a good buy here as it appears cheap compared to a number of other social merchandise sites, given its high take rate. Comparing take rates with associated sales to value ratios allows us to see how cheap POSH stock is now. My estimate is that it is worth at least 35% more at $53.63 per share.

This article will discuss how I came up with that target value.

Poshmark’s Valuation

For example, Poshmark talks a lot about its Gross Merchandise Value (GMV). This is the base of seller transactions on which the company charges its fees, producing revenue. The take rate is the level of revenue divided by the GMV. For example, in Q4 GMV was $387.2 million, up 28% year-over-year. Since net revenue was $69.3 million, the take rate was very high at 17.9% (i.e., $69.3 million divided by $387.2 million).

I wrote an article recently showing that the take rate at Airbnb (NASDAQ:ABNB) was 14% in 2020 and 4% for Square (NYSE:SQ). But here’s the thing: ABNB stock trades at a forecast 2021 enterprise-to-sales (EV/Sales) ratio of 21 times and SQ stock has an EV/Sales multiple of 13 times.

By contrast, POSH stock has an EV/Sale multiple of 8.54 times ($2.76 billion EV divided by $323 million in forecast 2021 sales). In other words, these stocks have lower take rates but are more expensive.

Poshmark competes with a number of other social site merchandisers. EBay (NASDAQ:EBAY) is a competitor and had a take rate of 10.9% in Q4 ($2.9 billion in revenue divided by $26.6 billion). But EBAY stock has an EV/Sales multiple of 3.8 times ($45 billion EV / $11.9 billion est. 2021 sales). But eBay is much larger and more mature and profitable than Poshmark. So it has a lower take rate but also a lower EV/Sales multiple.

Etsy (NASDAQ:ETSY) is a similar marketplace merchandiser of used goods (although Poshmark is mostly clothes). Etsy has a higher gross merchandise sales (GMS) take rate than eBay, but lower than Poshmark, but also a higher EV/Sales valuation.

For example, last year, the company had $10.3 billion in GMS and net marketplace revenue (not total revenue) of $1.3 billion. That means its take rate was 12.6%, much lower than Poshmark’s 17.9%. But its enterprise value (EV) of $24.9 billion is 11.5 times its forecast $2.17 billion in sales for 2021. Compare this to POSH stock, which, as I pointed out above, is at just 8.5 times EV-to-sales.

What To Do With POSH Stock

Even if we ignore Poshmark’s much higher take rate vs. Airbnb, Square, eBay and Etsy, its EV/Sales ratio is too low. This assumes that we ignore eBay as an outlier since it is so much larger and mature.

For example, compared to ETSY, the valuation should be 35% higher (i.e., Etsy’s 11.5 times EV/Sales vs. the 8.5 multiple at Poshmark). Given that Poshmark has a much higher take rate, this is more than reasonable.

In fact, POSH stock is worth more than 11.5 times EV/Sales. At the very minimum, it implies that POSH stock is worth $53.63 per share (i.e., 35% above POSH stock’s price of $39.64 per share).

However, take this into consideration. One analyst at Seeking Alpha, in his article, “Poshmark is a Waste of Time for Sellers” makes a valid point that the take rate is its weakness and potential downfall. This is because the high level of fees charged by Poshmark compared to its customers could eventually lead to a lower level of sellers and customers.

In other words, too much of a good thing (for shareholders) is not good for the company and its sellers in the long run. However, here is my retort to that. So far, analysts are predicting higher sales and positive profits for Poshmark. Until sales and profits turn down, it seems to me that POSH stock is still undervalued by at least 35% and is worth at least $53.63 per share.

On the date of publication, Mark R. Hake held a long position in Square (SQ) stock.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.