Retailing is a difficult business characterized by high competition levels and low profit margins. But that's not the case for tech companies that help connect retailers with buyers. Done right, the middleman selling approach can translate into predictable sales growth and impressive cash flow -- all with relatively low financial risk.

Etsy (ETSY 0.16%) and Shopify (SHOP 3.75%) are both set up to take advantage of these favorable economics. The platform specialists don't carry expensive inventory and their profit margins are multiples of what you might find at a large national retailer.

Wall Street has far different expectations for these two marketplace platforms. So let's see which one most investors should prefer to have in their portfolios today.

Shopify's premium position

Etsy has an excellent value proposition as a company that focuses on unique, often hand-crafted products. But that solid positioning isn't translating into durable sales growth right now. Transaction volume has been close to flat for several quarters even as e-commerce demand picked up for many peers into mid-2023. Shopify reported a much stronger 22% volume boost for Q3 as its transactions crossed $56 billion, up $10 billion year-over year.

Etsy is still attracting more buyers to its app and website, which is a hallmark of a healthy platform business. It is outperforming eBay on this score, too. Yet most of those buyers are reengaged shoppers who had fallen out of Etsy's ambit. That fact, plus the Etsy's low volume gains, will have growth focused investors more excited about Shopify right now.

Shopify isn't just reliant on transaction fees to grow sales, either. The software-as-a-service business provides dozens of services to merchants including payment processing, data analysis, and financial services. It has many more ways to boost its sales footprint, in other words, than Etsy does .

Etsy's rebound strategy

Etsy stock might appeal more to investors seeking a compelling rebound story. After all, the stock has clearly fallen out of Wall Street's favor in 2023, declining 40% compared to Shopify's 84% surge. That drop makes it less likely that you'll overpay for this business, which is still in a far stronger position than it was before the pandemic.

The stock is valued at just 3 times annual sales, in fact, down from a price-to-sales ratio of over 6 earlier in the year. You'll have to pay 12 times sales for Shopify, which is a steeper premium than investors are paying for Microsoft right now.

Etsy's discount might be a great deal -- if you believe in management's recovery plan. Executives have focused on upgrading the shopping experience in recent months, and they are finding success in a new marketing strategy that aims to reengage past buyers rather than try to find new shoppers. There are encouraging early signs that the shifts are working. Etsy is expanding its buyer pool right now, for example, and sales volumes accelerated slightly between Q2 and Q3.

Ultimately, most investors will prefer Shopify stock today even at its elevated valuation. The e-commerce platform giant has room to expand on its solid market share in the industry, even as profit margin and cash flow continue rising. There's already concrete progress for shareholders to review on these points, too, while Etsy is still struggling with weak overall demand.

Both businesses are likely to be setting sales records in a few years, but growth stock investors have a clearer path toward market-beating returns by putting Shopify in their portfolios today.