It's been a tough couple of years for Etsy (ETSY 0.02%) shareholders. Although the online shopping platform was all the rage during the pandemic, the company's results in the meantime haven't justified the stock's then-lofty price. Shares are now down more than 70% from their late-2021 peak, knocking on the door of a new 52-week low.

But for anyone looking years down the road (as all investors should be), this recent weakness is a long-term buying opportunity. The improvements Etsy has been making to its business haven't had enough time to gain traction, but they eventually will. Five years from now, the company and its stock should be shining stars.

Etsy, up close and personal

On the off-chance you're reading this and aren't familiar with its business, Etsy is an e-commerce company. It's not quite like Amazon, though. In fact, it's distinctly different -- whereas Amazon is built to sell mass-produced goods on a massive scale, Etsy connects entrepreneurs and small businesses with consumers looking for handmade, often one-of-a-kind goods.

Although these products make up only a sliver of the overall retail market, IMARC Group estimates the handicraft arena is worth around $1 trillion per year, jibing with numbers from Credence Research and Technavio.

Much of this business is still done offline, but thanks to websites like Etsy, buyers and sellers are both finding it's possible to deal in "one off" goods via the internet. Indeed, Etsy is expected to report approximately $13 billion of gross merchandise sales in 2023, turning $2.7 billion of that into revenue for itself. The company's also profitable with analysts projecting per-share profits of $2.37 for the recently ended year.

The problem? Etsy's not exactly growing right now.

The COVID-19 pandemic fueled rapid growth for its business, but it didn't last. Revenue growth has slowed dramatically, while profits have actually been shrinking. That's a big reason the stock's been such a poor performer of late -- investors are understandably worried.

ETSY Revenue (TTM) Chart

Data by YCharts.

But as the old adage goes, nothing lasts forever. Etsy's has been taking various actions to improve the appeal and shopability of its e-commerce platform. Investors have yet to see the full benefit of these efforts though, and it could take a few more years for them to reach their full potential.

That said, the stock could start to rally well before then in anticipation of these changes for the better.

Etsy's growth initiatives

Take its recently unveiled gift-giving technology as an example. Powered by artificial intelligence, the two-thirds of consumers who struggle to find a meaningful gift for other people in their life can simply ask Etsy to make a suggestion.

It's also helping sellers get better at running their online businesses. A few years ago, Etsy updated its app to let sellers upload product photos directly from their phones, as well as purchase shipping labels and manage inventory. In the same sweeping improvement, the company made it easier to check order statuses and take a more detailed look at a particular customer's history.

Etsy is also now leaning heavily on collaborations with celebrities. Musician John Legend and actress Drew Barrymore are just a couple of the stars now lending their fame to the site, making Etsy more of a lifestyle brand than a mere marketplace for handmade goods.

Less obvious, behind-the-scenes initiatives include improvements to its search algorithm that can draw consumers to a particular seller's store.

It's difficult to know for sure exactly how much traction these efforts are gaining. Making such assessments even more challenging to do is the fact the economic environment is also in flux, with lots of consumers feeling pinched by higher prices.

We're seeing several encouraging signs of life, though. During Q3 2023, the number of new and reactivated buyers grew 6% year over year, while the number of repeat buyers edged a little higher again to 36.6 million. That's the fourth straight quarter the company's grown its number of regular shoppers -- a growth trend that began when Etsy was finally able to start refining its business following the sweeping disruption from the pandemic.

Look for these engagement metrics to continue improving as proof Etsy's investments are working.

Etsy's outlook

Investing often comes down to finding undervalued, underestimated stocks. Etsy is arguably one such opportunity.

Stronger top- and bottom-line growth could be in the cards this year, and things appear even more compelling the further down the road you look. The analyst community is modeling an average of $4.0 billion of revenue for Etsy in 2027, up about 50% from this year's projected sales. This growth is further expected to push the company's per-share profits up from last year's $2.37 to $6.79 per share in 2027.

Etsy's revenue growth is expected to accelerate beginning in 2025 in response to initiatives underway right now.

Data source: StockAnalysis.com. Chart by author.

The handmade-goods tide is certainly moving in the right direction at the necessary pace too. IMARC Group, Credence Research, and Technavio all agree that the handicraft market itself is poised to grow on the order of 9% annually over next five years. There's little doubt Etsy is uniquely positioned to capture more than its fair share of this growth.

As for the stock's future, that's a trickier task. While shares of a company tend to better reflect their underlying value as that organization matures, Etsy is still a relatively young company. It's also closely followed as a leader in its corner of the e-commerce industry, amping up its potential volatility (for better and for worse).

The thing is, interested investors should worry less about a specific long-term price target and instead have faith in the premise of stepping into high-odds, high-quality picks and then just leaving them alone. That being said, analysts' current one-year consensus price target of $81.72 is still 22% above Etsy shares' present price. That's not a bad tailwind to start your journey with.