Since the start of 2023, the S&P 500 has put up a ridiculous total return of 62%. That's an unbelievable gain that's well above historical norms for the widely followed benchmark.

Unfortunately, not all businesses have benefited from the bullish sentiment. In fact, there's one e-commerce company whose shares trade at a gut-wrenching 82% below their peak, which was established in November 2024. There are still reasons to be optimistic, though.

Here's why you should buy this growth stock right now.

A value proposition

Etsy (ETSY 0.36%) has carved out a niche in the retail sector with its online marketplace specializing in unique and vintage goods. According to a survey by the company, 83% of buyers said that the site has items they can't find anywhere else. This highlights the value Etsy provides, allowing it to separate itself from the competition.

Amazon gets a lot of attention, but it focuses on mass-market goods that can be delivered as quickly as possible. Etsy avoids playing this game altogether.

In the U.S., online shopping represents 16% of all retail sales. That figure has climbed steadily over the years, demonstrating the sizable opportunity for Etsy to keep growing over the long term. And I suspect e-commerce penetration is even lower on a global level.

According to management, the business has a total addressable market of $500 billion, a figure that includes online sales of relevant product categories within the company's six core geographies. That leaves plenty of runway.

Network effects

At a high level, Etsy is a two-sided platform. On one side, there are 96.7 million active buyers. On the other side, there are 8.5 million active sellers. The company makes money by collecting fees whenever a transaction takes place. It gets paid for facilitating the connection between buyer and seller.

As a result, Etsy benefits from a network effect. Its huge buyer base is incredibly valuable to sellers looking to generate income from the sale of goods. And with more buyers, this becomes even more evident.

And more merchants immediately make Etsy more valuable to shoppers. This expands the product assortment, which boosts the chances consumers can find exactly what they're looking for.

This cycle also means that the company doesn't have to invest in inventory, warehouses, or delivery drivers. It's an asset-light business model.

If entrepreneurs wanted to create a competing marketplace, they would need to attract consumers and merchants without having a deep supply of either. In other words, solving the chicken-and-egg problem introduces a massive hurdle, which supports the belief that Etsy's competitive position is strong.

Discount valuation

Etsy's differentiated platform and network effects haven't prevented the business from struggling recently. Third-quarter gross merchandise sales of $2.9 billion were 4.1% lower than the year-ago period. And it was the lowest amount for a third quarter since 2020. Basically, the company has had trouble expanding volume on the marketplace in a post-pandemic normalization.

This has weighed heavily on the stock, which as previously mentioned is 82% off its all-time high. The company experienced monster growth before and during the pandemic. But macro headwinds revealed how sensitive it is to economic forces beyond its control. Because its marketplace depends on robust consumer discretionary spending, it can experience volatile demand.

Nonetheless, the opportunity right now is compelling. Shares trade at forward price-to-earnings ratio (P/E) of just 11.2. That's about half the valuation multiple of the S&P 500.

I believe investors will need to be patient for the company's financial performance to improve. But the upside is sizable should Etsy get back to posting solid growth in the years ahead.