Current Price Levels Make Pinterest Stock a Difficult Trade

Pinterest stock again trades near its previous price floor

The biggest challenge with Pinterest (NYSE:PINS) stock may have become figuring it out. After what most would consider a successful IPO, Pinterest has again fallen to a critical inflection point. This may leave investors confused about how to trade PINS.

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Since more traditional indicators are not as useful in evaluating PINS, investors have little more than charts by which to evaluate Pinterest stock.

Where PINS Stock Stands Now

PINS stock has only traded since this past April. It rose quickly from its $19 per share original IPO offering price. However, since peaking at $36.83 late in the summer, it has steadily fallen back toward the $25 per share range.

If PINS stays near current levels during the month, Oct. 31 will likely become a critical date for the equity. That’s when the company will announce its third-quarter earnings. On All Hallows’ Eve, investors will probably wonder whether the report brings tricks or treats to its investors. Unfortunately, few attributes, other than possibly the stock charts, can point to a definitive short-term direction for Pinterest stock.

Even valuations will offer little help. For now, it trades at about 15 times sales. Also, analysts expect losses until next year when Wall Street projects a consensus profit of one cent per share. Put simply, the stock is too young and trades in too hot of a sector to put too much weight into fundamentals.

Traders will probably also have to make peace with Pinterest’s core audience. Our own Josh Enomoto emphasizes the fact that the site’s female demographic dominates in terms of both signups and user engagement. Since I shut down my personal Pinterest account after dabbling with the platform, he may have a point. Certainly, more men could help PINS in some respects. On the other hand, like other social media sites, Pinterest derives its revenue from advertising. If the site is known as a “go-to” for reaching key female audiences, I do not see that as a negative for Pinterest stock.

Moreover, given that Facebook (NASDAQ:FB) already dominates the general interest niche, I do not see having half of the population as your primary niche limiting. I would prefer that demographic to the teen and young adult audience of Snap (NYSE:SNAP), which will tend to lose much of its audience as it ages. Pinterest will likely not suffer this problem with its core constituency.

Pinterest Stock Investors Forced to Turn to the Charts

This leaves the best hope for Pinterest stock bulls appears to be the behavior of the equity itself. In the short history of PINS stock, it has twice bounced back near the $25 per share level. With the stock back down to the $25.60 per share range as of the time of this writing, it has again begun to reach this inflection point.

Now the question becomes whether the approximate $25 per share floor again holds? If PINS can bounce back from this level, history indicates it can rally to much higher levels. Unfortunately, if PINS fails to maintain this floor, little can stop its move lower. SNAP supports a similar price-to-sales (PS) ratio. However, Twitter (NYSE:TWTR) trades at only 9.3 times sales, while Facebook supports a PS ratio of just 7.9.

Such comparisons do not bolster the bull case for Pinterest stock. For now, it seems bulls in Pinterest stock can do little else but watch the charts and the upcoming quarterly report.

The Bottom Line on Pinterest Stock

PINS stock traders have little more than charts by which to evaluate the equity. The company benefits from a loyal following among females. This has taken its revenue growth level to just over 35% and could bring it to profitability next year if Wall Street forecasts continue to hold.

However, with the stock trading close to 15 times sales, fundamentals give few clues as to whether the stock goes next. Pinterest stock has twice bounced higher after nearing or falling slightly below the $25 per share level. If it remains near this level, the Oct. 31 earnings report may influence whether PINS can bounce back, or whether the stock breaks through this floor. With PINS stock just above $25 per share, traders can do little else but watch and wait for now.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.

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