Sellers of Pinterest (NYSE:PINS) stock were out in full force after the company’s recent earnings release, but I believe they’ll regret their decision soon. I am bullish on PINS stock because Pinterest’s results were perfectly fine, and the reasons for the share price decline aren’t entirely rational.
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Headquartered in San Francisco, Pinterest operates a social media app that’s based mostly on picture sharing. This distinguishes Pinterest from Twitter, and Pinterest’s visual emphasis allows for selling/monetization opportunities within the app.
PINS stock was actually doing fairly well in 2023 until it released its earnings report yesterday. All of a sudden, buyers turned into panic sellers, and Pinterest was out of favor among investors. Naturally, contrarians will want to investigate further instead of following the crowd — and after a deep dive into the data, you might want to take a position in Pinterest stock.
Snap Stock’s Fall May Have Weighed on Pinterest Stock
Before we get into the nitty-gritty of Pinterest’s financials, it’s worth noting that Snap (NYSE:SNAP) stock collapsed at the same time that PINS stock fell. In fact, SNAP stock was even deeper in the red than Pinterest stock today.
This is relevant because oftentimes, there will be a phenomenon in the financial markets known as the sympathy effect. Snap is in the same niche market sector (social media apps) as Pinterest, and since SNAP stock declined sharply, PINS stock may have fallen in sympathy.
In other words, some panicky traders who owned Pinterest stock might have seen the scary decline in Snap stock and feared that PINS stock could be next. Also, they may have thought that the entire social media app sector was in trouble because of Snap’s problems.
Personally, I relish opportunities like this. I’m not suggesting that 100% of the price decline in PINS stock was due to the sympathy effect with PINS stock. It’s likely that this was a contributing factor, though, and Snap’s problems aren’t necessarily Pinterest’s problems. That being said, it’s important to acknowledge Pinterest’s specific issues – which, I think you’ll agree, really aren’t all that bad.
Pinterest Beats Sales and Earnings Forecasts, but Traders Sell Anyway
Along with the Snap sympathy effect, bearish traders were undoubtedly reacting to Pinterest’s first-quarter 2023 financial results. Here’s the kicker, though: Pinterest has a good track record of EPS beats, and the company just delivered another beat.
Starting with the top line, Pinterest posted $602.6 million in quarterly sales, up 5% year-over-year and ahead of the consensus estimate of $594.2 million. So far, so good. In addition, Pinterest’s EPS of $0.08 beat Wall Street’s call for $0.01. These results are impressive, considering the market’s first-quarter jitters about high inflation potentially crimping advertising spending.
On top of all that, Pinterest reported 463 million global monthly active users in Q1, up 7% year-over-year and outpacing the consensus prediction of 454.6 million. Clearly, there’s nothing objectionable about Pinterest’s actual results. Nevertheless, if short-term traders insist on being bearish, they’ll inevitably find something to complain about.
In this instance, their problem with Pinterest revolved around the company’s forward guidance. For the current quarter, Pinterest expects its revenue to “grow roughly in line with the growth we saw in Q4 2022 and Q1 2023.” Thus, the company doesn’t anticipate near-term revenue growth acceleration for Q2 2023.
If that’s the excuse for traders to push PINS stock down 15.66% in a single day, it’s a flimsy one. Pinterest didn’t say that its revenue won’t grow; the company only suggested that its revenue growth won’t accelerate. It seems that financial traders are so spoiled now that growth isn’t good enough anymore; the rate of growth has to grow, as well.
Is PINS Stock a Buy, According to Analysts?
Turning to Wall Street, PINS stock comes in as a Moderate Buy based on seven Buys and 14 Hold ratings. The average Pinterest stock price target is $28.95, implying 25.9% upside potential.
The Takeaway
Apparently, sell-side traders used any possible excuse to dump Pinterest stock. In time, I expect them to regret this hasty decision. Pinterest overcame macroeconomic challenges and delivered results that exceeded experts’ predictions.
What more could anyone ask for? Evidently, traders ask for too much sometimes, but this presents an opportunity. Pinterest is doing just fine from a financial perspective, so I’d say it’s a great time to consider PINS stock.
