Pinterest (NYSE:PINS) shares slipped 1.3% as of this writing Monday in the wake of a downgrade by Bank of America. Specifically, BoFA downgraded PINS stock to “Neutral,” citing “better reopening ideas” for 2021.
Really? Better reopening ideas than PINS stock?
Pinterest isn’t just a solid long-term winner underpinned by secular tailwinds in mobile entertainment consumption, visual search and digital advertising, but the stock also doubles as a great reopening trade.
That’s because the more people travel and plan events, the more they are going to use Pinterest for travel and event inspiration.
In short: Ignore Bank of America’s analysts. Instead, buy Pinterest’s stock on this dip and hold onto it for a big 2021.
PINS Stock: A Long-Term Winner
Zooming out, the number one reason to like PINS is because Pinterest is a long-term winner.
Pinterest has essentially created a “visual Google”. At its core, the platform is a visual search engine where consumers can browse through contextualized images of anything and everything, based on a search query and/or your personalized interests. And, because a picture paints a thousands words, consumers are increasingly using Pinterest as a place to seek inspiration for doing things.
Its a tool for purpose-driven visual discovery.
Purpose-driven visual discovery is the future. It enables consumers to quickly and efficiently find compelling inspiration for embarking on cool projects and pursuits. So long as consumers want to embark on cool projects and pursuits, purpose-driven visual discovery will increase in popularity.
Pinterest stands alone as the leader in the purpose-driven visual discovery space. The company has all the users, all the content, and all the data to create an unmatched consumer experience.
To that end, Pinterest is much more than a social media platform. It’s a digital tool which enables people to do things more efficiently in the real world — and with a value prop that is that wide and value-additive, Pinterest has the potential to turn into a global ubiquity like Google.
Not to mention, because Pinterest is a place where consumers go when they are looking to actually do or buy something, Pinterest’s targeted ads should be highly effective (imagine going to Pinterest to look for kitchen remodeling ideas, and you get an ad for a marble slab seller in your area… you will probably end up clicking that ad).
Big picture? Pinterest is a great company, with a ton of user growth and ad revenue growth potential. Long-term, that means Pinterest’s stock is a big-time winner.
A Great Reopening Trade, Too
Bank of America didn’t downgrade Pinterest because they think it suddenly stopped being a long-term winner. No. Instead, they downgraded the stock because they think that it will lose favor amid the Great American Reopening.
Ostensibly, that makes sense.
But, upon closer inspection, it actually makes no sense. Pinterest may be one of the best reopening trades in the market.
As stated earlier, Pinterest is a place where consumers go to seek inspiration for doing things. The more consumers do things as the global economy reopens in 2021/22, the more they’ll go to Pinterest for inspiration.
Consumers are going to travel a lot more over the next 12 to 24 months. Pinterest will serve as place for all those travel-hungry consumers to find cool places to visit.
Consumers are going to do a lot of clothes shopping over the next 12 to 24 months, after a year of holing up in their home offices. Pinterest will serve as a place for all those shoppers to find cool outfits.
Consumers are going to workout more over the next 12 to 24 months, since the more people go out and socialize, the more they care about how they look (it’s only natural). Pinterest will serve as a place for those newfound workout enthusiasts to find workout regimens.
The list goes on and on. The point stays the same: The more consumers do various things in 2021/22 that they shunned in 2020, the more those consumers will use Pinterest.
That’s why Pinterest shares are actually a great reopening trade.
By my numbers, PINS is significantly undervalued today, meaning that a reopening-driven acceleration in user engagement in 2021/22 could spark a big rally in the stock.
We broadly see Pinterest as sustaining ~10% user growth over the next decade and ~15% ARPU growth, to drive ~25% revenue growth. We also see operating margins expanding to just over of 40% at scale. Assuming so, our valuation modeling outputs a fair 2021 price target for Pinterest stock of at least $90.
The PINS stock price today sits at $70.
Thus, there is solid fundamental upside potential here over the next ~12 months.
Bottom Line on Pinterest Stock
Pinterest is one of my favorite growth stocks to buy for the long-term, that also doubles as a great reopening trade.
But it’s not the best growth stock to buy today.
Instead, the best growth stock to buy today is a company that reminds me of a young Amazon (NASDAQ:AMZN). Indeed, I think buying this stock today could be like buying AMZN stock back in 1997 — before it soared thousands of percent.
Which stock am I talking about?
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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