Etsy (ETSY 0.34%) knows it has a problem. In mid-December, the marketplace specialist's management team announced a restructuring plan aimed at getting the business back on track following several years of weak sales volumes and rising expenses.

These trends forced executives to make a few aggressive strategic shifts heading into 2024. "We need to acknowledge and adjust for today's realities," CEO Josh Silverman said in letter to employees last month.

Investors will want to be cautious in projecting a quick rebound for Etsy's stock. But there are some good reasons to think the next year will be better for shareholders.

Accelerating growth

Etsy has been falling short of its No. 1 stated goal for merchants: to help them boost their sales each year. Sure, the marketplace business is more than twice the size it was before the pandemic struck. Yet gross merchandise sales (GMS) have been essentially flat since 2021. This metric was down 1% in the past nine months, too.

There's no real path to a rebound for Etsy's business that doesn't include faster GMS gains. The good news is that management has plenty of financial resources it can devote to this project, partly thanks to the recent cost cuts and layoffs.

And there are a few clear areas that can be made better. Etsy is working to improve the shopping experience, recently revamping its recommendation and search-result engines. It is adding value to its platform for merchants as well by introducing more services. Investors can judge the success of these moves over the next few quarters by watching GMS trends for signs of a meaningful acceleration.

Improving margins

There's less uncertainty around Etsy's profit trends, which are highly likely to rebound in 2024. That's mostly thanks to company's recent layoff announcement, which can be seen as a less aggressive version of the road map that helped spark a return to profitability for Shopify last year.

Etsy's finances aren't as dire as Shopify's were a year ago. Etsy is generating operating profit of about 14% of sales today, after all. Yet the stock could see a lift along with an uptick in this metric.

Etsy can reasonably target profitability of around 21% of sales, which is where rival eBay is sitting right now. Even modest progress along this score would likely help boost shareholder returns, especially if it happens in the context of accelerating volume growth.

A more attractive valuation

Etsy stock is valued as if none of this potential will be realized. Shares are priced at less than 4 times annual sales, down from 8 times sales in early 2023. That discount only makes sense if you believe Etsy won't return to solid growth in its buyer pool. It also reflects the expectation that the platform won't expand much beyond its current service footprint.

But Shopify has demonstrated that there's a huge appetite from merchants seeking to offload more of their business processes to a trusted partner. Etsy's challenge over the coming quarters is to tap into that demand even as the company reduces its cost burden. In that ambitious scenario, it's likely that investors will see rebounding returns for this beaten-down growth stock.