Etsy (ETSY 0.34%) was on top of the world a couple of years ago. The pandemic led to a surge in demand for online shopping, which bolstered the company's financials and share price.

But it's been a disappointing story since then. Macro headwinds, coupled with the normalization of consumer behavior, have just about put a pause on growth. Etsy shares are currently 72% below their peak price.

With 2023 coming to a close, all hope isn't lost. Investors should be optimistic as we look ahead. Here are three watertight reasons that this top e-commerce stock could rocket higher in 2024.

1. Valuation upside

While the Nasdaq Composite Index soared 44% this year, Etsy shares lost 31% of their value (As of Dec. 28, 2023). The pessimism is still present for investors when it comes to this business.

This is obvious when looking at the stock's valuation. Etsy currently trades at a forward price-to-earnings (P/E) ratio of 17.6. That's about as cheap as shares have sold for in the last three years. What's more, this multiple represents a discount to the S&P 500.

Investors have unsurprisingly punished the stock because Etsy isn't growing like it was during the depths of the coronavirus pandemic. But this is still a competitively advantaged and profitable business with a unique offering, which works in its favor in the cutthroat e-commerce sector.

"Be greedy when others are fearful," the great Warren Buffett said. Long-term investors who are bullish on Etsy have the opportunity to do just that by buying shares right now.

2. Financial discipline

Like other tech companies, Etsy is rightsizing its operations. This involved cutting 11% of the workforce recently to get its costs under control, particularly with demand trends not showing any signs of improvement.

CEO Josh Silverman highlighted how gross merchandise sales (GMS), a key performance indicator that measures the dollar amount of transactions taking place on the online platform, have stayed basically flat compared to two years ago. So it was necessary to lay off employees to have expenses better match this reality.

The positive outcome of all of this is that Etsy is going into 2024 as a leaner enterprise, which can boost profitability. Etsy's operating margin in Q3 of 13.9% was a healthy improvement compared to just three months prior. The hope is for this to continue next year.

Maybe more importantly, the leadership team can learn from its past financial mistakes. In the third quarter of 2022, Etsy recorded a massive $1 billion impairment charge related to its acquisitions of Depop and Elo7 in the summer of 2021. This was a huge blunder that ended up destroying shareholder value.

Looking ahead, perhaps it's a good idea for the company to avoid making acquisitions. Instead, the focus should be on the core Etsy marketplace.

3. Macro improvements

Another important factor that could help Etsy shares skyrocket in 2024 is the possibility of an improved macroeconomic backdrop. Inflationary pressures and higher interest rates forced consumers to prioritize spending on essentials, while at the same time reducing discretionary purchases. This has an outsized negative impact on a company like Etsy.

With the Federal Reserve potentially looking to cut interest rates multiple times in the near term, the hope is that the economy will start to pick up steam. In Etsy's case, it would benefit tremendously from stronger spending on its platform. This could lead to a larger buyer base, as well as higher GMS and revenue.

Should growth start to accelerate throughout the year, it could work wonders for the stock price. A better economy is another watertight reason Etsy could skyrocket in 2024.