Earnings season is in full swing, with Etsy (ETSY -1.43%) providing a financial update for its third-quarter 2023 (for the period ended Sept. 30). Revenue totaled $636 million, and diluted earnings per share came in at $0.64. While the bottom line beat expectations, the sales figure missed Wall Street consensus forecasts, so it's not a surprise the stock dipped immediately following the news.

This top e-commerce stock has had a difficult year, as shares are down 47% (as of Nov. 8). Even more alarming, it's currently 78% below its peak price, which was set two years ago in November 2021.

Investors shouldn't write this company off, though. This is a growth stock you should think about buying right now. Let's see why.

Sizing up the third quarter

Although Etsy's revenue missed estimates, the total was still up 7% year over year. That growth is an encouraging sign for investors. What's also very exciting to see is that Etsy's user base continues to expand. Active buyers (97.3 million) and active sellers (8.8 million) were up 3.4% and 19%, respectively, versus the 2022 third quarter.

But shareholders might have been hung up on the fact that gross merchandise sales (GMS), which measures the dollar amount of goods sold on the platform, was up just 1.2%. For the current quarter, the leadership team expects GMS to decline in the low-single-digit range. Since Etsy makes its money from the sales that occur on its marketplaces, this is a concerning trend.

"As you all know, there's been significant pressure on consumer discretionary product spending," CEO Josh Silverman said on the Q3 2023 earnings call. He pointed to higher interest rates and inflation as key factors impacting consumers. Etsy mainly sells non-essential items, like jewelry, home furnishings, and apparel, which are things that consumers have no issue holding off buying when times get tough. This is something to pay close attention to in future earnings announcements.

Zooming out

It's easy to get overly focused on a company's latest quarterly results, particularly now when it seems every investor is worried about a possible recession looming on the horizon. But as long-term investors who care more about the next five years, as opposed to the next five months, it's important not to ignore what really matters.

Take Etsy's unique value proposition in the market. It's protected itself against an e-commerce juggernaut like Amazon because it sells items that are hard to find. According to a company survey, 87% of Etsy buyers said the marketplace offers things they can't find anywhere else. This should keep the business in a position of power for many years.

Etsy also possesses an economic moat in the form of its network effects. The huge number of buyers attracts more sellers looking to set up shop on the platform and reach a global audience. And as the seller base grows, introducing a greater selection of merchandise, more buyers will look to Etsy for their shopping needs. This situation becomes stronger over time.

Investors also can't forget that Etsy is a financially sound business. It generated $653 million in free cash flow in 2022. And that shouldn't be a surprise, mainly because the company is asset-light. It doesn't own any inventory, trucks, or warehouses. Instead, it provides the tech platform that connects buyers and sellers. This helps explain why margins have expanded rapidly over the years (excluding 2022, when a one-time goodwill impairment charge led to a net loss).

Shares have gotten so beaten up in the past couple of years, and today, they are ridiculously cheap. The stock trades at a forward price-to-earnings ratio of just 13.5. As a result, investors should be rushing to buy Etsy shares right now.