With hundreds of billions in net sales in 2024, coupled with the fact that nearly 40% of all spending online in the U.S. happens on its website, Amazon is likely a top choice among investors who are looking to put money to work in an e-commerce stock. Shares of the tech giant have been a monster winner, soaring 1,100% in the past 10 years.

Since Amazon is such a massive enterprise today, investors might be interested in looking off the beaten path at an under-the-radar business for a potential opportunity. It's worth pointing out that shares of the company I'm talking about currently trade a gut-wrenching 82% off their peak from November 2021.

Should you buy this e-commerce stock with $1,000 right now?

Ongoing challenges

If you want exposure to online shopping, perhaps Etsy (ETSY -0.27%) catches your attention. In the five years leading up to its record, the stock was a smashing success, rising 2,170%. However, the company's ongoing issues have resulted in weakening market sentiment, something that shows no signs of ending anytime soon.

Etsy just reported disappointing financial results for the fourth quarter last year. Gross merchandise sales (GMS) dipped 6.8% year over year. The company has had problems growing this key performance metric ever since the easing of the pandemic. That's a troubling indicator because its ability to generate revenue is dependent on rising GMS.

Management blamed a number of factors in its fourth-quarter shareholder letter. Declining GMS was "a result of pressure on consumer discretionary product spending, challenging year-over-year comparisons in a shortened holiday season, category mix, and a highly promotional and competitive retail environment," it says.

It has become obvious that Etsy's operations are much more cyclical than investors probably assumed. It seems consumers aren't interested in spending on discretionary items, even though the economy is on solid footing. What's more discouraging is the fact that the company spent 13% more on marketing in 2024, but revenue only increased by 2%.

Etsy's positive traits

One of Etsy's core strengths that has driven its past success is its focus on differentiated products. A survey in 2023 found that 83% of buyers agreed that Etsy has items they can't find anywhere else. This at least helps the business stand out in the e-commerce industry.

What's more, it has a competitive advantage in the form of network effects. As of Dec. 31, it counted 8.1 million active sellers and 95.5 million active buyers on the platform. As the marketplace expands, it becomes more valuable to everyone. More sellers provide greater choice to buyers, and more buyers mean more revenue-generating opportunities for sellers.

Cheap for a reason

With the market trading in record territory, it might be hard to find cheap stocks to add to your portfolio. Here's where Etsy truly stands out.

As of this writing, shares trade at a dirt cheap forward price-to-earnings ratio (P/E) of 10.8. This shouldn't be surprising given that the stock is 82% off its all-time high. The market has rightfully become very pessimistic about Etsy.

I've recommended buying shares of this company in the past, but even my conviction has been tested by Etsy's struggles.

On the one hand, the stock's beaten-down valuation might compensate for the company's ongoing challenges. Even the slightest fundamental improvements can send the share price higher in no time.

But on the other hand, I think the prudent move is to wait until there are clear signs of improvement. To be more specific, this means GMS must return to a steady growth trajectory. It has now declined in three straight years, with no end in sight.

If you have $1,000 to invest, I don't believe Etsy is deserving of that capital today.