After Its Re-Rating, Pinterest Stock is a Buy

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The situation with Pinterest (NYSE:PINS) stock is much like the situation with Meta Platforms (NASDAQ:FB). Of course, both are social media plays. But both have seen their respective valuation compress on the prospect of slowing growth.

Pinterest logo. PINS stock.
Source: Ink Drop / shutterstock

Meta compressed to a point where it’s basically a value stock. In Pinterest’s case, it may be too soon to say it’s a value play. A forward price-earnings (P/E) ratio of 22.8 is low for a tech stock, yet not exactly “value is its own catalyst” territory.

That said, you may not need to pick PINS stock a fire sale price to make it a profitable investment.

Reasonably priced at today’s levels, there’s potential for Pinterest’s valuation to pick up again, if and when its rate of revenue and earnings growth speeds back up. For now, the market isn’t pricing in that prospect ahead of time. It’s taking a “wait and see” approach instead.

However, caution works in your favor. With many factors pointing to things becoming exciting again for this pandemic-era favorite, you may want to move in before the crowd moves back into PINS stock.

The Market’s Current View on PINS Stock

In recent months, with its U.S. user growth slowing down post-pandemic, investors have taken a less bullish view on Pinterest. Granted, there was a point last month where it seemed as if this sentiment change was about to reverse.

The company’s earnings report and guidance update on Feb. 3 was well received, resulting in a short-lived boost for PINS stock. Since then, shares have continued to pull back, mainly due to the market’s own declines.

The negatives in PINS stock are twofold. First, the company’s seen a drop in monthly active users, or MAUs. With its user base dropping, Pinterest needs to make big improvements to monetization in order to hit its growth targets.

Second, even if the company does meet expectations, growth will be coming in at a far slower pace than seen in prior years.

With this, Main Street and Wall Street are hesitant to give it a higher valuation than it trades for right now. But taking a closer look, it doesn’t appear as if Pinterest has a longshot chance of delivering results that enable it to make at least a partial price recovery.

Upside Potential May Prove the Skeptics Wrong

While leaning towards bullish on PINS stock, I’ll admit that it’s not going to re-hit its 52-week high of nearly $90 per share. It could even be a longshot to double its current price to approach $50.

There may be room for Pinterest to make a gradual move higher, though, assuming its results in the quarters ahead signal that it’s making further progress with monetization of its international user base. Based on its latest results, the rate of growth for both U.S. and non-U.S. monetization is slowing down.

For the full year, average revenue growth per user (ARPU) outside the U.S. was up 80%, and up 43% domestically. For Q4, these figures had decelerated to 62% and 25%, respectively. On a global basis, ARPU was 36% for full year 2021, versus 23% for just Q4 2021. But while its stateside revenue growth has decelerated sharply, non-U.S. growth may not be falling off such a steep cliff. At least, that’s the view of my InvestorPlace colleague Faisal Humayun.

In a recent article on PINS stock, Humayun mentioned that the international expansion of its shopping feature only kicked off last year. Still in the early stages of monetizing the site outside the U.S., the rollout of this new (to international markets) feature may minimize how much its non-U.S. revenue growth slows down throughout 2022.

If this plays out, the company could hit analyst revenue and EPS estimates this year ($3.12 billion, and $1.05, respectively).

Consider Buying Pinterest While It’s Out of Favor

For next year, the sell-side projects Pinterest’s earnings could go from $1.05 per share to $1.46 per share. A year from now, if that appears likely, and the stock simply maintains its current valuation? That implies a move to around $33.30 per share.

That may not sound as exciting as the prospect of its doubling or, tripling in price and heading back near its past high. Yet at a time where many names in tech stand to keep dropping due to frothy valuations, it may be a better opportunity.

PINS stock offers the potential for a moderately high gain. It’s already taken its lumps in terms of multiple compression as well. Consider it a buy while it’s out of favor.

On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


Article printed from InvestorPlace Media, https://investorplace.com/2022/03/pins-stock-after-re-rating-is-a-buy/.

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