Etsy (ETSY 0.16%) is one stock that hasn't come close to regaining its 2021 highs. In fact, the e-commerce site has continued to decline since reaching its peak in 2021 and is now down more than 70% from its all-time high. While investors would love for the stock to regain its highs, many would settle for it to regain some of its value. But the company hasn't done much to instill confidence in the investor base with recent results. So could 2024 be Etsy's rebound year?

Etsy's merchandise sales haven't risen

Etsy is the market leader in custom and handmade goods and saw a massive adoption spike during COVID lockdowns when many people searched for customized gifts for family and friends. Since that initial expansion, Etsy hasn't seen much gross merchandise sales growth.

Period Q3 Gross Merchandise Sales Q3 Revenue
Q3 2020 $2.63 billion $451 million
Q3 2021 $3.11 billion $532 million
Q3 2022 $3.00 billion $594 million
Q3 2023 $3.04 billion $636 million

Data source: Etsy.

So, if Etsy isn't growing its gross merchandise sales (GMS), how is its revenue rising? It has to do with ads, payment processing, and a price hike Etsy instituted. But there is only so much juice to squeeze from these revenue sources. If Etsy is to grow meaningfully again, it must get its merchandise sales moving in the right direction. But future guidance doesn't indicate that is happening. Management expects GMS to decline into the low-single-digit range in Q4.

If Etsy has peaked and no growth is left in the tank, it needs to work on increasing its profitability. Unlike many companies, Etsy hasn't laid off any of its workforce in 2023, which could mean it's adequately staffed or that management doesn't feel the need to make cuts.

Etsy's finances are skewed by several one-time charges in last year's third quarter. So, while I'm hesitant to use metrics like adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) -- because a company can subtract anything they want -- I think it's useful here.

In Q3, Etsy's adjusted EBITDA rose 8.6% year over year, with the margin expanding by 40 basis points. That's not market-beating growth, which makes me question why I still own Etsy shares. But there's one reason I haven't sold my position yet, though it's not a great excuse.

Etsy's stock is valued cheaply for a reason

Etsy's stock price has declined rapidly despite its finances being relatively steady. That's because investors are unwilling to pay as much for a chunk of Etsy's business due to nonexistent growth. While it seems obvious, it bears a reminder that if a stock trades like a growth stock and doesn't come through on expectations, it will get crushed.

This is exactly what happened with Etsy. The stock now trades for a dirt cheap 16 times 2024 earnings.

ETSY PE Ratio (Forward 1y) Chart

ETSY PE Ratio (Forward 1y) data by YCharts. PE Ratio = price-to-earnings ratio.

But one question remains: Is Etsy worth owning if it isn't delivering market-beating growth? I'd say no, but my hesitancy to sell has to deal with a dirt cheap valuation as I don't want to sell at a market bottom. With the stock up 30% since Nov. 1, I may take this opportunity to get out.

Unless Etsy can kick-start its total merchandise sales, there's no reason to own Etsy stock. With the company proving it cannot do it for two years in a row, I'm ready to move on, especially with much better investments available.