Visual discovery engine Pinterest, Inc. (PINS) made a name for itself in the social media space with constant innovations in its products and services and by making its platform more personalized for users. It is focused on delivering more inspiring and shoppable content and attracts healthy advertising traffic to its platform. However, the stock declined 10.5% last week after Cleveland Research analyst Chandler Converse forecasted a weak ending to the company’s fiscal 2021 first quarter.

The stock is currently trading 17.8% below its all-time high of $89.90, which it hit on February 16, 2021. PINS said that  its revenue is expected to grow in the low 70% range year-over-year, which is lower than its fourth quarter revenue growth. Also, PINS faces intense competition from the likes of Snap Inc. (SNAP). So, the company’s near-term outlook seems uncertain.

Here’s what we think could shape PINS’ performance in the upcoming months:

Positive Developments

Early this month, PINS introduced its Content Claiming Portal as a brand-new tool that  allows creators to claim their content and decide if and how it appears on the platform. Creators must  submit a Content Claiming Portal application, and, upon approval, the creator will be able to upload the original content and select from one of the following enforcement options — Mine only, website only and block all.

PINS  is expected to soon launch its advertising platform in Brazil. Also, there are rumors that PINS is in talks to buy VSCO (Visual Supply Company), a photography app popular with teens.

Robust Financials

The company’s fourth quarter (ended December 31, 2020) revenue climbed 76.4% year-over-year to $705.61 million, driven by a strong holiday season and positive returns from its investments in ad products and international expansion. Its U.S. Monthly Active Users (MAUs) increased 11% year-over-year to 98 million for the quarter, while its international MAUs increased 46% year-over-year to 361 million.

PINS’ non-GAAP net income during the fourth quarter came in at $294.31 million, up 282.9% year-over-year. Its non-GAAP EPS of $0.43 represents a 258.3% year-over-year rise.

Stretched Valuation

In terms of forward non-GAAP price/earnings ratio, PINS’ 92.60x is 355.9% higher than the industry average 20.31x. In terms of forward price/sales ratio, the stock’s 19.24x is 957.1% higher than the industry average of 1.82x. Also, the stock’s forward enterprise value/sales of 18.61x is higher than the industry average 2.79x.

POWR Ratings Don’t Indicate Enough Upside

PINS has an overall C rating, which equates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. PINS has a C grade for Sentiment. This is justified because Wall Street analysts expect a potential decline of 6.4% for the stock in the near term.

Moreover, it has a D grade for Value, in sync with its significantly higher-than-industry valuation ratios.

In addition to the grades we’ve just highlighted above, we’ve also rated PINS for Stability, Momentum, Quality, and Growth. Get all PINS ratings here.

PINS is ranked #22 out of 71 stocks in the Internet industry.

Better than PINS: Click here to access eight top-rated stocks in the same industry.

Bottom Line

PINS’ revenue has increased at a CAGR of 53% over the past three years because of its increasing users and more advertising on its platform. However, the stock retreated  last week because of unfavorable analyst comment and lower guidance for its fiscal 2021 first quarter (ended March 31, 2021) revenue. So, we think it’s better to wait until it releases its first quarter financial results before investing in the stock.

PINS shares were trading at $71.40 per share on Tuesday morning, down $2.51 (-3.40%). Year-to-date, PINS has gained 8.35%, versus a 10.75% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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