Pinterest (NYSE:PINS) stock has lost 27% of its value since announcing mixed third-quarter results on Oct. 31. Now trading 71 cents below its April IPO price of $19, PINS stock is moving into buy territory.
Many Investors Don’t Understand Pinterest
Investors sometimes get carried away with numbers. I’m as guilty as the next person when it comes to using metrics as ammunition. It’s easy to overwhelm someone with reams of data to support an argument. But lots of data doesn’t always lead to accurate forecasts over the longer term.
In my experience, some of the best stocks over the long haul have been companies that investors couldn’t understand or appreciate.
Take Lululemon (NASDAQ:LULU), for example. I’ve been tooting its horn since 2012. Back then, investors were worried about it being too focused on the yoga market. They’re not so worried about that anymore.
I believe that PINS stock could be in the same boat.
InvestorPlace columnist Mark Hake recently suggested that investors shouldn’t buy PINS stock because the social media platform’s growth is slowing. And making matters worse, it’s losing money, which is the kiss of death at the moment.
“So, in summary, Pinterest is losing money on a cash flow basis. Its growth is decelerating and is too saturated with ads. Its U.S. MAU base growth is slowing and Pinterest stock is more expensive than its peers,” Hake wrote in his Dec. 12 column.
I have no reason to doubt the accuracy of that statement. However, I tend to view Pinterest’s future based less on numbers and metrics and more on the usability of its website.
Pinterest’s Redesign Makes It Better
I’ve recently begun following my wife’s suggestion to get a hobby that doesn’t involve staring at my computer screen all day. Unfortunately for her, one of the ideas I’ve come up with is to start collecting corporate memorabilia. After all, I write about companies all day. so why shouldn’t I start collecting memorabilia as a way to get the story behind the story?
But the problem is that Pinterest’s social media platform is darn near perfect for hunting down some of these collectibles, so the hobby doesn’t get me off my computer.
For example, I searched the words “Red Rose Tea” recently. (Red Rose Tea is a Canadian brand, founded in 1861) and Pinterest spit out several items that I could add to my collection.
As the company highlighted in its Q3 earnings press release, a big part of its future success is dependent on the Pinner experience. For that reason, it continues to tweak its algorithms to give users the better experience they’re looking for.
As I’ve gotten more familiar with Pinterest’s platform, I haven’t found evidence to support the contention by Hake, my fellow InvestorPlace columnist, and others that it is oversaturated with ads. I’d argue that Pinterest provides one of the best ad platforms for businesses of any size looking to market their products and services unobtrusively.
They’re hardly noticeable.
The changes that Pinterest is making to its e-commerce business and its advertising will, in my opinion, lead to a significant surge in its average revenue per user. As companies realize that the alternatives aren’t nearly as effective at generating positive buzz, they will get on the Pinterest bandwagon.
The Bottom Line on PINS Stock
Is Pinterest perfect? No.
Is it losing money? Yes.
Is it fun and addictive to use? Heck, yes.
Is the PINS stock price overvalued? I don’t believe it is. In fact, Pinterest stock just might have entered buy territory.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.