It has been a wild ride for Etsy (ETSY -2.41%) shareholders over the last several years. The company, which operates an online marketplace platform that focuses on unique and handmade goods, enjoyed soaring growth during the first couple of years of the pandemic, but has spent the better part of a year fighting to hold onto those gains.

Due to the issues faced by the business, Etsy's shares have dramatically underperformed the market. The stock is down by about 50% over the past three years, and is down almost 73% from the all-time high it touched in late 2021. But while a company's history is important to consider, what matters more to investors is the future.

So what could the next few years hold for Etsy?

The first step

Management's first and most pressing goal for the company is to get it back to sustainable growth. The good news is that there have been encouraging signs in its recent quarterly updates suggesting that process is already underway. Sales volumes were essentially flat in the third quarter, for example, after declining through the first half of 2023.

Etsy is steadily gaining buyers, too, even as peers like eBay experience modest losses. Stabilization will come first over the next few quarters, if management has its way, before Etsy can target much faster growth ahead once consumer discretionary spending rebounds.

"We believe Etsy can be more relevant, more often, to millions of more buyers around the world," CEO Josh Silverman told investors back in May.

Changing the platform

Attracting those buyers won't be easy. That's because Etsy needs to improve major aspects of the customer shopping experience to help it stand out against rivals like Amazon. The plan over the coming years is to boost the platform's organization and curation so that buyers can more easily browse for products that delight them.

At the same time, Etsy aims to make its platform more valuable to merchants. This will involve adding features that help sellers in areas like advertising, promotions, pricing, and payment processing. Shopify has demonstrated how this path can lay the foundation for more software-as-a-service sales, rising profit margins, and faster overall growth. Etsy isn't nearly where it wants to be yet on any of these factors. But its large, relatively stable sales footprint gives it some valuable resources it can deploy to help it reach its goals.

The pricing path

There's no guarantee that Etsy will meet its rebound goals, nor that this recovery will happen quickly enough to satisfy Wall Street. The stock might well continue to underperform the market in 2024.

Yet shares have already priced in much of the more pessimistic scenario. The stock now trades at around 4 times annual sales, down from its pandemic-era peak of nearly 20. Its price-to-sales ratio has been cut in half just this past year, too. Shopify, which is admittedly growing much more quickly, is priced at nearly 15 times annual revenue.

Etsy will need to make major improvements to its platform in the coming years to have a reasonable hope of expanding its stock valuation in that direction. Investors should watch key metrics like sales volumes, buyer growth, and profit margin for signs of progress.