At the start of 2020, Pinterest (NYSE:PINS) wasn’t exactly setting the world on fire. Before the novel coronavirus, while stocks overall were making new highs, PINS stock was treading water at best.
After March’s Covid-19 crash, it hit rock-bottom like the rest of the market. But then the company made a stunning comeback. Sure, the rebound in this “stay-at-home economy” stock was similar to other names that found themselves thriving in the new normal. Yet, instead of just “getting back to zero,” shares in Pinterest actually made up for years of underperformance by September.
In the past two months, shares have rallied about 75%. Now, those who skipped out earlier this year may be kicking themselves. But the party’s not over just yet.
What do I mean? Sure, the company’s epic rally in the past few months reflects its exposure to pandemic tailwinds. But this name has staying power, too.
As I wrote earlier this month, investors have incorrectly deemed this a social media stock. Yes, its platform does fit into this category. But, unlike other social media platforms, Pinterest is more of a pre-shopping source. With this in mind, its no surprise that the company’s revenue growth is surging, as retail spending continues to pivot from brick-and-mortar to online.
In hindsight, this stock’s strong performance should have been no surprise. And there’s still plenty left in the tank. Those who missed out earlier this year can still find an opportunity, with Pinterest shares now pulling back from recent highs.
Why PINS Stock Has Long-Term Staying Power
At first glance, it may seem like this company’s recent success is just a “one and done” event, courtesy of pandemic tailwinds. That’s a short-sighted view. True, the remote trend has been Pinterest’s main catalyst in recent months. However — as seen from its recent guidance — its clear this company’s growth isn’t going away, even when the pandemic fades.
How so? After posting 58% sales growth in its third quarter, the company anticipates even stronger growth of 60% in upcoming Q4.
What’s behind this? Unlike other social media, Pinterest isn’t the place you go to talk with friends and family — or voice personal opinions. Instead, it’s a place you go for craft and home improvement ideas, before you spend the money to turn these ideas into tangible projects.
Because of that shopping focus, Pinterest makes much more sense as a place advertisers want to be. Couple that with increased e-commerce, and it’s clear why this company’s crushing it in the revenue growth department.
There are also other trends in motion that favor Pinterest long-term. Women have traditionally been this site’s primary audience. But — as more men use the platform as inspiration for their hobbies — it’s clear that the site’s total addressable market is growing much larger. Add in the tremendous international growth as of late, and it’s evident there’s significant runway ahead.
In turn, that means there’s great potential for more long-term gains with PINS stock.
Today’s Valuation Is Reasonable, Relative to Growth Prospects
So, there’s no denying this stock’s long-term potential. But even those who lean bullish on shares may fear of a massive correction just around the corner.
Yes, with the stock’s current forward price-to-earnings ratio of 99, I can see why this could be a concern. However, investors need to keep things in perspective.
Sure, comparing its share price today against trailing earnings, Pinterest’s valuation looks frothy. Yet, its continued strong revenue growth also means a big surge in Pinterest’s earnings per share (EPS).
For 2020, analyst estimates call for earnings of around 27 cents per share. But in 2021, Wall Street’s average earnings forecast is 60 cents per share. In fact, high estimates call for 2021 EPS topping $1 per share. That means the company — which used to post losses — could turn into a cash cow.
So, don’t think of PINS stock as a name that will grow into its valuation. Instead, expect further upside. Today’s prices continue to understate Pinterest’s long-term earnings potential.
Following earnings, Pinterest hit prices of nearly $69 per share. But, with investors taking profits, shares have slightly dipped since the start of November. Sure, shares have picked up after falling to around $55 per share on Nov 10. But, changing hands at around $59 now, the stock is still a few bucks off its recent high.
Far from topping out at today’s prices, now’s the time to enter a position in PINS stock. With its long-term staying power and accelerating growth, Pinterest remains a solid buy.
On the date of publication, Matt McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article had a long position in PINS. The InvestorPlace Research Staff member did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
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