With its share price down another 11.4% since the start of March, the worst might not yet be over for Pinterest (NYSE:PINS).
It has been a tough haul for PINS shareholders. In the last six months, Pinterest’s stock has plunged almost 60%, including a 36% year-to-date decline. Since late January, the shares have taken several runs at $30 but have not been able to sustain any momentum and is currently trading at $23.17.
Pinterest’s shares are now trading below the $23.75 price they debuted at in their April 2019 initial public offering (IPO). The stock is almost 74% below its all-time high of $88.83 reached last spring. The social media company’s shares appear to have been brought lower by a combination of subpar earnings, negative sentiment, and a rotation out of technology growth stocks.
Earnings Growth and Expansion
Pinterest, a social media site based in San Francisco that allows people to share images and videos, has nearly 500 million global monthly active users. And despite the steep selloff in its share price, the company continues to grow and exceed expectations with its earnings results.
The company’s fourth quarter print, announced on Feb. 3, showed that Pinterest had earnings per share (EPS) of $0.49 and revenue of $847 million. Those numbers trounced analyst forecasts of $0.45 EPS and revenue of $827 million, according to Refinitiv data. Revenue grew 20% year-over-year. Those results sent PINS stock up 11%, but the rally was short-lived and the share price quickly retreated.
Looking forward to the rest of this year, Pinterest’s management has said that they are focused on four areas of growth: advertisement automation, advertising optimization, international expansion, and shopping. The company is trying to make advertisements and shopping less obvious on the Pinterest site and integrate it more with the website.
Pinterest is also focused heavily on international expansion, with plans to expand across Europe. Throughout this year, the company plans to introduce Pinterest in Latin American countries such as Colombia, Chile, and Argentina, as well as expanding in Japan.
Management Defections
One issue that plagued Pinterest as its share price has declined is a raft of management resignations. Since last summer, the heads of seven different departments within the company, including the vice president of sales, have defected from Pinterest. These departures have shaken confidence in the company and its stock and raised questions about internal turmoil at Pinterest.
One reason for the exodus might be the fact that Pinterest’s leadership, which had owned more than 53 million shares of PINS stock last summer, saw their collective value fall to $1.4 billion from $4.8 billion at the start of 2021. Regardless, that many departures in such a short period of time is a bad look.
The stock drop has dramatically lowered Pinterest’s valuation, giving the company a forward price-to-earnings (P/E) ratio of 21.8, which is cheap for an organization that has forecast annual growth this year of 20%.
The cheap valuation has led to persistent rumors that Pinterest is a takeover target. Last fall, there were media reports that the company was going to be acquired by fintech company PayPal Holdings (NASDAQ:PYPL). Those rumors proved to be false and PINS stock has continued to decline in recent months. It will be interesting to see if any real suitors materialize in the coming months.
Don’t Buy PINS Stock On the Downslope
It is hard to recommend a stock that continues to fall sharply. One would think that a 60% pullback would be a buying opportunity. But with Pinterest having declined a further 11.4% in the last month and sitting below the price at which it entered the market three years ago, the stock continues to be a bad bet.
As it slides toward $20 per share, it is hard to say where Pinterest stock will end up. With the technology heavy Nasdaq index now in a bear market defined as a 20% drop from recent highs with volatility continuing, a social media company such as Pinterest is likely to endure more pain, at least in the short-term. As a result, investors should stay on the sidelines. PINS stock is not a buy.
On the date of publication, Joel Baglole 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.
