What happened

Etsy (ETSY 0.34%) investors enjoyed solid gains this week as shares rose 12% through Thursday trading. That's as compared to a 2.5% jump in the S&P 500, according to data provided by S&P Global Market Intelligence. Etsy shares remain in deeply negative territory for the year, though, down 22% compared to the wider market's 17% increase.

That market rally surely played a role in Etsy's boost this week, but the more direct catalyst was waning pessimism about the business on Wall Street

So what

Etsy stock made a big move on Tuesday after it was listed by a Wall Street firm as an attractive buy at the current valuation. An analyst at Evercore included the e-commerce platform among some big names in the tech sector that could produce excellent short-term returns. The analyst cited relatively low valuations for stocks in this group, along with the potential for accelerating sales gains.

Etsy certainly qualifies in both regards. Investors are currently paying less than 5 times annual sales even following the recent rally. The valuation was closer to 7 at the beginning of the year and peaked at over 16 during the pandemic. Etsy's sales trends have room to improve from here as well. Revenue rose 11% this past quarter, mainly thanks to rising seller fees. The company has just returned to buyer growth, and the revenue trend should improve once its volume begins expanding again.

Now what

Investors will get more information about the business when Etsy announces Q2 results in late July. Most Wall Street pros are looking for modest sales growth of about 6% while earnings shrink slightly. The bigger question is whether management will forecast a positive second half to the year ahead thanks to stabilizing e-commerce demand. Etsy is also working on improving its shopping experience, potentially boosting conversion rates on the way.

Continued steady success on these scores is the clearest path toward positive shareholder returns over the long term, notwithstanding quick moves like the one investors saw this week. As Warren Buffett famously advised, "Our favorite holding period is forever." This reflects the wealth-building value of patient long-term investing strategies. Investors who are able to ride out the volatility and stick with their investments, much like Etsy in the current climate, often have the potential to achieve substantial returns over time.