It’s been a while since I’ve written about Pinterest (NYSE:PINS) stock, but it’s not for a lack of interest.
PINS stock caught fire this summer, surging up toward $80. Since then, the stock has been hammered.
A bear market in growth stocks didn’t help matters, but Pinterest was bouncing back nicely. Then the company reported earnings and that didn’t go over very well.
For bulls, it’s definitely discouraging price action. However, the deep dip offers an opportunity for patient investors who are focused on the long term.
In February 2020, I was bullish on PINS stock. Of course, it was buried a month later when the novel coronavirus hit. Even amid the recent pullback though, shares are still up 150% since I last discussed the stock.
Despite the dip, I still remain a bull on Pinterest.
Breaking Down Pinterest Stock
When Pinterest reported earnings in late July, the stock was obliterated, falling more than 18% in a single day. There’s been little life in PINS stock since, with shares still down 24.4% from the prior closing price ahead of earnings
Interestingly though, the report wasn’t a disaster.
In fact, the company beat on earnings and revenue expectations, with sales of $613 million beating expectations by more than $50 million and growing 125% year over year. Don’t forget this growth company is profitable, as well. Adjusted EBITDA came in at $178 million vs. consensus estimates of just $89.4 million.
When it comes to social media, all investors seem to care about is user growth. U.S. monthly active users (MAUs) fell 5% to 91 million, missing estimates of 96.1 million. International MAUs rose 13% to 363 million, but missed expectations of 388.3 million.
Could it really be as simple as users are enjoying their life?
At the very least, this sounds like an excuse. At most, after a year of various lockdowns and with vaccines finally available to the public, it simply could be that users put down their phones, went outside, took trips, saw their friends and family, etc.
Why I’m Sticking With PINS
I love several things about PINS stock and not necessarily in this order:
- Strong growth
- Free cash flow positive
- Strong margins
- Strong balance sheet
Going point by point, analysts expect 55% revenue growth this year, 31% growth next year and an acceleration back up to 36% growth in 2023. Over the last 12 months, Pinterest has been profitable. Analysts expect earnings of $1.05 per share this year and $1.40 per share next year.
That leaves this stock — again, with three years of estimated revenue growth of 30%-plus — trading at about 51 times this year’s earnings and 38 times next year’s estimates.
Next, Pinterest has generated over $370 million in free cash flow in the last 12 months, more than both Snap (NYSE:SNAP) and Twitter (NYSE:TWTR). The company’s trailing gross margins of 77.6% handily beats Twitter’s 64.2% and Snap’s 54.03%.
It’s worth pointing out that PINS stock has a market capitalization of just $35 billion, while Twitter and Snap sit at $50 billion and $115 billion, respectively.
Lastly, Pinterest had $1.71 billion on its balance sheet coming into the pandemic and as of last quarter, it has $1.76 billion in cash and equivalents. Oh yeah, and it doesn’t have any debt.
Trading PINS Stock
Anyone who has followed me over the years knows that I love scooping up a high-quality growth stock at a discount. I don’t hide my strategy. It’s simple and in plain English (and right here).
Sitting about 40% off the highs, I don’t know what’s next for PINS stock. Another disappointing quarter can send this stock reeling even further, potentially filling that gap around $46.50.
However, if bulls regain control, $60-plus is possible, with that massive gap in play up toward $70.
No one knows where PINS stock is heading next, but I do know that — because of all the reasons laid out above — this is a high-quality entity. When those businesses are down 40% from the highs, I start to accumulate. Your mileage may vary.
On the date of publication, Bret Kenwell held a long position in PINS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.