There is something interesting about Pinterest (NYSE:PINS), which has been roasting its way higher lately. In fact, PINS stock is up 217% over the last six months and 462% from the March low.
But that’s not the interesting thing about this stock. Instead, it’s how investors have been classifying its business. Many investors consider Pinterest a social media stock. Think about it, don’t you too?
However, that narrative is…false. Well, mostly false.
Pinterest isn’t a social medium. Instead it’s masquerading as a social medium when really it is a go-to source of inspiration for people looking for a project. That may include cooking a new dish, making a new craft, remodeling the patio or finding the perfect tile design for their backsplash.
For marketers, Pinterest is incredibly valuable. Its users are already here — right here, right now — looking for a project or an idea. Some of these users are even willing to purchase items for their new idea. Thus, there’s hardly a social element at all to this business and it certainly doesn’t have the toxicity we see on other platforms.
Overall, Pinterest is more like an advanced search or browse function than anything else — and Wall Street’s finally starting to catch on.
Breaking Down Pinterest Stock
There are a lot of investors who keep looking at Pinterest as a second- or third-tier social media platform. This is a mistake. It’s one of the best converters for marketers in terms of generating sales. It’s incredibly efficient within the space and that efficiency is helping drive Pinterest’s top and bottom line.
Analysts expect 42.6% revenue growth this year and another 41.5% growth in 2021. In 2019, Pinterest generated sales of $1.14 billion. In 2022 — two fiscal years from now — consensus estimates call for more than $3 billion in sales. Almost triple the revenue in three years? Sign me up.
Moreover, estimates for 2021 and 2022 are up significantly vs. other parts of the year. For instance, estimates for next year were closer to $1.75 billion this summer, $600 million below current estimates.
The bottom line is moving in the right direction too. Last year, the company reported break-even results. This year, it’s forecast to earn 29 cents per share, before potentially doubling in 2021 to 63 cents per share.
Furthermore, I love the balance sheet here.
Total assets of $2.39 billion crush total liabilities of $369 million. Cash and equivalents of $1.71 billion is an enviable position, particularly with the company having no debt. In reality, Pinterest could afford to be even more aggressive, but you have to respect a company willing to keep a tidy balance sheet.
Bottom Line on PINS Stock
PINS stock is transitioning from a doubted social medium to a robust growth stock. When that happens, emotions become involved and it can impact decision making. But let’s tune out some of the noise and boil it down to just the facts:
- Is social media a growing industry with a widening addressable market? Yes.
- Is Pinterest finding growth in that growing industry? Yes.
- Are the financials OK? Yes.
- Is management executing at an acceptable pace? Yes.
Thus, as long as Pinterest continues to grow its user base, grow revenue and increase its monetization of international and domestic users, the stock price will take care of itself.
Yes, PINS stock has soared from the lows, so volatility can be expected. But in the grand scheme of things, so what. It won’t matter. The price action in the short term is just noise, while we’re here for the secular growth theme.
The chart here is wonderful, but it would be unreasonable to think that the stock couldn’t pull back. Technically speaking, PINS stock looks great. It continues to grind up along short-term support, and even made a new high on Friday.
If it weren’t for the dip in the market, Pinterest would have likely broken out and went on another run. But would it be the unhealthiest thing to see it shed $10 per share and dip to the 50-day moving average? No.
When investors start to find themselves in these big winners — like PINS stock — they just have to accept that pullbacks are part of the business. In the long run, a dip to the 50-day or even lower should only be viewed as a buying opportunity.
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 held a long position in PINS.