Shares of niche e-commerce company Etsy (ETSY -1.27%) are down roughly 70% from their all-time high. But the stock is still up 500% over the past five years. Therefore, thoughts on Etsy's performance are largely a matter of perspective.

Etsy stock is up so sharply over the past five years because of the surge in adoption its platform has enjoyed. However, the stock is down in 2022 as investors fret over user engagement in coming quarters. These bears likely missed a recent report that suggests Etsy's business is booming as much as ever. If true, this might make Etsy stock a good contrarian buy right now.

Etsy downloads are through the roof

Official quarterly financial results aren't expected from Etsy until August. So investors will have to patiently wait for confirmation of the following numbers. However, data from third-party research group AppFigures shows that the Etsy app is seeing unseasonably high downloads right now.

Typically, the Etsy app gets downloaded more around December, when gift-giving is high. Etsy app downloads also spiked in the early weeks of the pandemic as people were searching for custom face masks. The months of April and May typically don't have anything special going on, and downloads for Etsy are consequently lackluster. 

Not so this year, according to AppFigures. Etsy's best month ever was this past December with 2.3 million downloads. But April and May of 2022 are hot on December's heels with 2.1 million and 2.2 million downloads for the Etsy app respectively.

It's possible that existing Etsy users just got new phones and are downloading the app as a result. But it's also possible that Etsy was adding new users as fast as it ever has during the second quarter of 2022, which would likely mean business is booming for the e-commerce company.

Putting the numbers in context 

I started this article by noting Etsy's five-year stock performance. So let's rewind the clock five years. At the end of 2016, the company had 28.6 million active buyers and 1.7 million active sellers. And for the record, 48% of gross merchandise sales (GMS) came from mobile app at the time.

Fast forward to the end of the first quarter of 2022. The Etsy platform now has 89.1 million active buyers and nearly 5.5 million active sellers, and 66% of GMS was from mobile devices. With user growth like this, it's not surprising to see Etsy stock outperform the market.

However, the Etsy platform only added about 200,000 active sellers from the fourth quarter of 2021 to Q1 2022. And during this time, it actually lost almost 1 million active buyers. In other words, users trends were down. But if the 4.3 million downloads in April and May (combined total) represent new buyers, Etsy could surprise a lot of investors when it reverses that trend in Q2.

This wouldn't be a theoretical surprise -- many believe Etsy is slowing down, not ramping up. For example, according to The Fly, on June 3, UBS analyst Kunal Madhukar cut their price target for Etsy stock in half, citing a deceleration in the business.

The stock market is forward-looking. And considering Etsy stock is trading at its lowest price-to-earnings (P/E) valuation ever, it's fair to say the market isn't pricing in the possibility of an unseasonably good quarter.

ETSY PE Ratio Chart

ETSY PE Ratio data by YCharts.

The bigger picture for Etsy

Etsy's business is more resilient than people give it credit. This resilience comes from a flywheel effect that spins faster with greater scale. More active buyers attracts an increasing number of entrepreneurially minded sellers looking to offer new products not available on Etsy's platform. And as the product catalog grows, it appeals to an ever-broader swath of consumers. This flywheel is hard to stop once it gets going.

I'll concede that Etsy's growth is slowing. Full-year revenue was up 111% and 35% in 2020 and 2021, respectively. By contrast, Q1 revenue was only up 5% year over year. And management's Q2 revenue guidance only represents between 2% and 11% growth.

However, these ongoing growth numbers demonstrate the resilience of Etsy's platform. And given how far the stock has fallen, I believe Etsy stock offers investors who buy today a better-than-average chance at market-beating returns over the next several years. In conclusion, this is a buying opportunity to take advantage of.