After the close Wednesday, Etsy (ETSY 0.02%) reported better-than-expected financial results for the second quarter. Investors aren't reacting positively to the announcement, though: Shares have fallen by about 6% since the e-commerce specialist delivered its report. 

The stock has been a terrible investment this year, down 20%, a far cry from the S&P 500's gain of 18%. And zooming out even further, we'll see that shares remain 68% off their peak price from November 2021. 

It appears as though the bears have been louder than the bulls with this top e-commerce company. But here's why I still think Etsy is a growth stock to consider buying right now. 

Looking at the latest quarter 

Etsy's Q2 revenue of $629 million was 7.5% higher than in the year-ago period. Net income fell by 15.3% to $61.9 billion. However, these headline figures beat Wall Street expectations. 

One of the most important metrics investors need to pay attention to when it comes to Etsy is gross merchandise sales (GMS), which measures the total dollar amount of transactions that occur on its various marketplaces. GMS came in above $3 billion in Q2, a 0.6% year-over-year decline. 

This might seem alarming for some shareholders, but it's worth pointing out that we are still in uncertain economic times, and consumers' willingness to spend on discretionary items is still under pressure. For what it's worth, Etsy's GMS in the latest quarter was 76% higher than it was in Q4 2019, before the pandemic. And CEO Josh Silverman said that Etsy's GMS grew in May and June, and that growth has so far continued in the current quarter. 

A notable bright spot was Etsy's expanding user base. There are now more than 96.2 million active buyers and 8.3 million active sellers on its sites, and both figures were up sequentially and  year over year. As these numbers get bigger, it raises the chances that spending activity increases, resulting in greater GMS and revenue for Etsy. 

Sizable growth opportunity 

In 2022, Etsy's core marketplace (excluding Reverb, Depop, and Elo7) reported GMS of $12 billion. That metric has grown rapidly over the years, but the management team believes that the company is barely scratching the surface of its total addressable market.  

Looking at the relevant product categories that Etsy specializes in, in the online channel, in its seven core geographies (U.S., Canada, U.K., Germany, Australia, France, India), the GMS opportunity is valued at a whopping $466 billion. Its current share of that is a tiny 2.5%. 

Thanks to its unique value proposition and its focus on vintage and handcrafted merchandise, Etsy has carved out a niche in the cutthroat retail industry. And this differentiation is something shareholders can appreciate. 

The valuation is attractive 

Because Etsy shares have been so beaten down in the past couple of years, and even more recently in 2023, investors today don't have to pay a steep valuation for the stock. Its current forward price-to-earnings ratio of 22.5 is near the cheapest the stock has sold for since the start of 2022. And it's just slightly more expensive than the S&P 500's forward multiple of 21. 

I think this is a reasonable price to pay for Etsy, despite the meaningful slowdown that its business has been registering. There is a sizable growth opportunity for management to focus on in the decade ahead.

Etsy has already shown that it can increase its bottom line at a faster rate than it grows its top line, as historical financial trends demonstrate that it has generally expanded its margins (except in 2022, when it took a one-time $1 billion impairment charge). 

Its capital-light operation benefits from network effects thanks to its two-sided marketplace. And it has a superb financial profile, with consistent free cash flow generation. 

While Etsy benefited when the pandemic boosted online shopping, the business is still well-positioned to post healthy growth in the years ahead. And at its current valuation, this stock looks like a smart buying opportunity.