Similar to most other growth stocks, shares of Pinterest [PINS] have remained volatile in the last few months. The company went public back in April 2019 and priced its shares at $19. PINS stock touched an all-time high of $86 last February before falling by almost 70% to currently trade at $26.80.
This article was originally written by MyWallSt. Read more insights from the MyWallSt team here.
The bull case for Pinterest stock
Pinterest is a visual discovery engine, and the social-media company is valued at a market cap of $17.63 billion. It has increased sales from $755.9 million in 2018 to $2.57 billion in 2021, indicating an annual growth rate of 50%.
Analysts expect revenue to rise by 22% to $3.14 billion in 2022 and by 27.7% to $4 billion in 2023. Its adjusted earnings are forecast to expand from $1.13 in 2021 to $1.4 in 2023. We can see that PINS stock is trading at a forward price to 2022 sales multiple of 5.60x and a price to earnings multiple of 24.4x, which is quite reasonable.
Pinterest reported sales of $847 million and adjusted earnings of $0.49 per share in Q4 of 2021. Comparatively, Wall Street forecast sales of $827 million and earnings of $0.45 per share in the quarter.
The social-media company explained it aims to improve user engagement by introducing formats such as short-form video, which should increase the consumer’s shopping intent. So, advertisers will now target customers with a higher interest, thereby improving value for all stakeholders.
Going forward, Pinterest might also add AR or augmented reality components to expand its monthly active users (MAUs) and drive top-line growth higher.
The bear case for Pinterest stock
Pinterest’s MAUs declined by 6% year over year to 431 million in Q4 of 2021. The company’s user base peaked at 478 million in Q1 of 2021 and has since fallen steadily in the following nine months. One key reason is the emergence of other social media platforms such as TikTok, the unwinding of the pandemic, and lower search traffic.
While the average revenue per user for Pinterest rose by 23% to $1.94 in Q4, investors should note that the international user generates just $0.38 for the company compared to a user based in the U.S. that brings in $5.55.
International users account for 80% of Pinterest’s total user base, and the company will have to expand its ARPU metrics consistently to drive revenues higher.
So, should I buy Pinterest stock?
Analysts tracking PINS stock have a 12-month average price target of $41.86, which is 56% higher than its current trading price. Pinterest’s attractive valuation and massive upside potential coupled with its increasing ARPU make it a top bet right now.
Does Pinterest stock pay dividends?
No, Pinterest stock does not pay investors a dividend.
Will PINS stock recover?
Analysts expect PINS stock to rise by more than 50% in the next 12-months.
Is PINS stock overvalued?
PINS stock is reasonably valued at current prices given its price to earnings multiple.
MyWallSt gives you access to over 100 stock picks, as well as providing free analysis, multiple podcasts, customised market updates straight to your phone, and much more. Sign up for free today
Disclaimer Past performance is not a reliable indicator of future results.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.