Etsy (ETSY 0.34%), an e-commerce marketplace for craftspeople and vintage goods, has fallen to its lowest level since the beginning of the pandemic in 2020. Financial results were lackluster in the third quarter of 2023, and despite e-commerce sales heating up elsewhere (like tech titan Amazon (AMZN 3.43%)), Etsy management provided no such rosy outlook for its final quarter of the year.

Nevertheless, by certain metrics, Etsy stock is starting to look incredibly cheap. Is it worth considering a buy, or is it time to move on?

Etsy holiday shopping season outlook wasn't great

First, a bit of good news. Etsy did report that gross merchandise sold (GMS) on its marketplaces tallied $3.04 billion in Q3 and revenue of $636 million came in above the midpoint of its most recent guidance. Adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) profit margin of 28.4% also exceeded management's guidance. Free cash flow generation remained strong in the quarter at a nearly 33% margin.

Be aware though, those profit margins got a bit of a bump thanks to the sale of the Brazilian marketplace Elo7 midway through Q3. It had purchased Elo7 in 2021 for $217 million, and the business segment likely sold for pennies on the dollar.

But Etsy's new guidance for the final months of the year disappointed. After achieving modest mid-single-digit percentage growth through most of this year, Etsy management projects a slight decline in Q4. Again, the sale of Elo7 is affecting this, but management was clear that a hyper-competitive retail industry, particularly in higher-end consumer discretionary (think non-essential shopping) items, is also hurting. CEO Josh Silverman and the top team are focused on growing profitably, and they want to grow in Q4 without hurting the bottom line much (or at all).

Investors should expect a low-single-digit decline in GMS compared to Q4 2022, though management admitted things could get worse given the higher interest rate environment that's biting the global consumer. Paired with a lower take-rate for Etsy when a merchant makes a sale, revenue and profit margins should contract a bit as well.

Etsy mistakes can't be overlooked anymore

Unfortunately, there's no clear-cut reason to believe a quick recovery is possible for Etsy anymore. I'm a fan of its particular brand of e-commerce, but more tough times could lie ahead. As already mentioned, other larger e-commerce platforms can lean into consumer staples and discounting, something Etsy has limited ability to do. I think a downturn -- or sluggish-at-best financial returns -- for the company could last into 2024.

As for the seeming value of the stock at the moment, Etsy stock currently trades for just 13 times enterprise value (EV) to free cash flow. Indeed, if Etsy can manage to reignite growth in 2024, perhaps a rebound can start to take root. But thus far, that's going to be dependent on the health of the global consumer -- and specifically a big comeback in consumer spending growth on higher-end merchandise.

Basically, I was wrong in thinking Etsy wasn't a value trap a few months ago.

Perhaps I will come back to this one later on. Management thinks shares are undervalued and continues to repurchase them ($484 million so far this year, or about 6% of the present market cap). Though that's a bonus, that was never the key reason I invested in Etsy stock years ago. For now, it doesn't look like a great buying opportunity for Etsy just yet with its marketplace under pressure. I may actually sell and move the money into another e-commerce stock, like Amazon, for the time being.