Image sharing platform operator Pinterest, Inc. (PINS) is widely known for its pins that are used to spark inspiration among users and save them to boards to keep their ideas organized. The visual social network’s shares soared 200.7% in price over the past year, driven by the company’s launch of advertising in Brazil, and strong growth in its international business. But the stock is now trading 13.5% below its 52-week high of $89.90, which it hit on February 16.

PINS’ stock slumped 7.3% over the past three months but gained 18.8% over the past month. The stock looks expensive at its current price level. In terms of non-GAAP forward P/E, PINS is currently trading at 87.88x, which is significantly higher than the 20.67x industry average.

While PINS’ recent expansion of its Idea Pins across various countries should enable the company to inspire more users to join its platform, and thereby further fuel its brand image, we think its current valuation looks unjustified given the class action lawsuits filed against the company and its mixed financials. So, the stock’s near-term prospects look uncertain.

Here is what we think could influence PINS’ performance in the upcoming months:

Lawsuits

Last month, Pomerantz LLP filed a class action lawsuit against PINS and  certain officers on behalf of its shareholders. Several other law firms, including Kessler Topaz Meltzer & Check, LLP, The Schall Law Firm, and Bronstein, Gewirtz & Grossman, LLC have also recently announced securities fraud class action lawsuits against the company on behalf of its investors. These actions  could cause  volatility in the stock price in the coming months.

International Expansion

Last month, PINS announced the expansion of Idea PINS, the company’s multi-page video Pin format, to  creators in New Zealand, Brazil, Mexico, Argentina, India, Spain, Italy, Ireland, among other countries. Since Idea Pins allows users to publish high quality content directly to PINS’ platform with the help of new publishing tools, the company’s user base is expected to grow significantly.

Favorable Analyst Estimates

Analysts expect PINS’ revenues to increase 42.5% in the next quarter (ending September 2021), 53.3% in its fiscal year 2021, and 32.9% next year. The company’s EPS is expected to rise 38.5% in the next quarter, 116.7% in the current year and 42.9% in 2022. Also, the Street expects KDP’s EPS to increase at a 9.1% CAGR over the next five years. Moreover, PINS surpassed the consensus EPS estimates in each of the trailing four quarters.

Mixed Financials

PINS’ total revenue rose 78% year-over-year to $485.23 million for the first quarter, ended March 31, 2021. Its international segment revenue increased 170% from its  year-ago value to $95 million. The company’s non-GAAP net income totaled $78.53 million for this quarter, compared to a $59.92 million net loss in the prior-year quarter. However, PINS’ loss from operations came in at $22.91 million, and its total operating expenses surged 21.6% from the prior-year quarter to $508.14 million.

The company’s 74.6% trailing-12-month gross profit margin is 47.2% higher than the 50.7% industry average. But PINS’ net income margin, ROE and ROA are negative 0.5%, 0.4% and 0.3%, respectively. Also, its 242.12 million in cash from operations s36% lower than the $378.48 million industry average.

Premium Valuation

In terms of non-GAAP forward PEG, PINS is currently trading at 5.14x, which is 177.6% higher than the 1.85X industry average. Its 475.58 trailing-12-month EV/EBITDA ratio  is significantly higher than the 11.12 industry average. Also, its respective 19.80 and 131.07 forward Price/Sales and Price/Cash Flow ratios compare with the 1.88 and 11.01 industry averages. 

Consensus Price Target Indicates Potential Downside

Currently trading at $77.72, Wall Street analysts expect the stock to hit $69.17 in the near term, indicating an 11% potential decline. The price targets range from a low of $42 to a high of $86.

POWR Ratings Reflect Uncertainty

PINS has an overall C rating, which translates 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 D grade for Value. The company’s higher-than-industry valuations ratios justify the value grade.

In terms of Sentiment Grade, PINS has a B. This is in sync with analysts’ expectations about its earnings and revenue growth.

The company has a Momentum grade of C. This is consistent with its price returns over the past three months and past month.

In addition to the grades we’ve highlighted, one can check out additional PINS ratings for Quality, Growth, and Stability here. PINS is ranked #22 of 72 stocks in the F-rated Internet industry.

Click here to view the top-rated stocks in the Internet industry.

Bottom Line

Although PINS has been growing its international business rapidly and making significant progress in delivering an inspirational Pinner experience, the company is currently struggling with several class action lawsuits that could negatively impact its price performance in the near term. Furthermore, the stock is currently trading at a lofty valuation. So, we think it could be wise to wait for better entry points in the stock.

PINS shares were trading at $75.37 per share on Thursday morning, down $2.35 (-3.02%). Year-to-date, PINS has gained 14.37%, versus a 15.14% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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