Morgan Stanley analyst Brian Nowak downgraded Pinterest (NYSE:PINS) stock last week from a $53 price target to a $30 price target. Nowak cited a lack of user retention and growth initiatives as his central argument for the downgrade. Furthermore, Nowak thinks PINS has poor capacity utilization, which investors will soon realize. I’m in disagreement with the downgrade, and here’s why.
Pinterest’s Key Drivers Are Robust As Shown By Key Metrics
Nowak’s analysis emphasizes global user growth, which has dipped by 6% year-over-year. However, it fails to capture the fact that PINS has monetized its products better, thus increasing its average revenue per user by 23%. This, in turn, lead to a 20% surge in global revenue.
Furthermore, Pinterest reached an adjusted EBITDA of $351 million in its fourth-quarter, a 17% year-over-year increase. This suggests that Pinterest has managed operations efficiently, especially when considering that we’ve been in a rising input cost environment.
To elaborate on the social media firm’s efficiency, Pinterest’s cash-flow-to-CapEx ratio has improved by a staggering 19.07% during the past year. In other words, it’s monetizing its fixed assets to the best of its ability. Additionally, the firm has broadened its operating margins by 82.55% since this time last year, indicating smooth internal operations.
PINS stock looks like good value for money at the moment. The stock’s price-to-sales ratio is trading at a 50.89% discount relative to its five-year average, conveying PINS’ scalable business model. Pinterest also has a price-to-earnings-growth ratio of 0.50, which means market participants underestimate its long-term earnings growth by 2.0x.
To conclude, I believe in Pinterest’s prospects. The company has clearly shown an ability to stay ahead of its competitors while retaining its user base. The market has also shown a great deal of interest in the stock of late as it’s trading above its 10- and 50-day moving averages, meaning that a momentum pattern has formed.
On the date of publication, Steve Booyens did not hold any position (either directly or indirectly) 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.
