Investors aren't feeling very positive about Etsy (ETSY -0.87%) stock ahead of its upcoming earnings announcement in early August. Shares of the online marketplace platform are down 19% so far this year, shutting the stock out of the 19% surge in the S&P 500 in 2023. Bears are worried that Etsy's best growth days are behind it, given its loss of buyers over the past full year.

Bulls see more potential ahead, though, after Etsy held on to most of its big pandemic-related gains. Sales and earnings trends might impress over the next few years thanks to a flood of new service introductions and ramped-up marketing spending.

But which outlook is closer to the truth? Let's take a closer look.

Etsy stock: The bear case

The bear case assumes that Etsy's pandemic growth represented its best days, and that the last few quarterly reports are closer to what investors can expect going forward. Sure, the company returned to growth in the key buyer metric as more shoppers returned to its platform to shop for unique and handmade products.

But its active buyer pool is still sitting at just 95 million, or about where it was a year ago. The only reason that revenue rose in the most recent quarter is because its expanding service fees offset a 5% decline in sales volumes.

Etsy's profitability isn't impressive, either. Net margin shrank to 12% of sales last quarter from 15% of sales a year ago. eBay's comparable figure is closer to 23% of sales.

Etsy stock: The bull case

Investing is about the future, though, and that's where Etsy's potential is bright. The company consolidated its gains from the pandemic, in contrast with eBay, which is still dealing with significant buyer losses. It is profitable, unlike peer Shopify, and has a good shot at expanding its margins over the next several years.

That boost might become apparent as early as August, when the company announces fiscal Q2 results. This period included several major releases aimed at improving the shopping and selling experiences. Marketing spending has been rising in preparation for these growth initiatives, too. Wall Street pros, on average, are looking for sales to rise 6% to roughly $620 million in the Q2 announcement on Aug. 2.

Take advantage

In the meantime, investors might consider taking advantage of the bearish attitude around this stock to grab a good deal. Shares are valued at less than 5 times sales right now, down from pandemic highs of nearly 20. Sure, Etsy's growth prospects have dimmed in recent quarters. But the company has a good position in the marketplace industry, remains profitable, and is targeting faster growth in late 2023 and into 2024.

If you prefer a less risky stock, you might look to established platforms with faster growth, like Shopify. Yet if you believe Etsy can build on the positive momentum it achieved in early 2023, then there's no reason to give too much credit to the bearish argument here. Etsy has a good shot at generating market-beating returns from here following a tough stretch for the stock through mid-July.