Pinterest, Inc. (NYSE:PINS) has caught the eye of investors as a possibly undervalued stock and as a company that has the ability to pull advertising revenue from Facebook. In this article, we’ll go over the fundamentals and see what we can expect from Pinterest in the future.
Since Pinterest became profitable, analysts have an easier time building models for the future and estimating the stock’s value.
Becoming profitable helps because it validates the business model, giving investors confidence that they are putting their money in a business that generates free cash flow.
The company’s latest revenue was $2.6 billion and showed a net profit of $316.4 million. Digging a little deeper, we can see that the company is very efficient at generating cash, since free cash flow is systematically greater than earnings. This is a great indicator of a strong business capable of increasing future profits! The last free cash flow was $743.9 million, more than double earnings. Remember that investors have a right to cash flow and metrics such as net income and EPS are used as an indicator of cash flow for investors.
Given the current landscape of the technology advertising industry, we can see that a competitor, Meta (NASDAQ: FB) has seen a drop in the effectiveness of its advertising algorithm. Although not their doing, it has led to increased costs for advertisers, who may in turn seek to diversify their advertising budgets and increase the use of Pinterest as an advertising platform. The benefit for advertisers is that people use the platform to discover the things they like, and in doing so, they self-categorize, which gives ad targeting algorithms much more valuable information about products that people are likely to buy.
The downside is that the platform is somewhat invasive and powerful, which makes the user experience quite poor and targeted at a specific type of person. Additionally, the social component of PINS is barely noticeable, which makes the platform less sticky as users open it with intent, rather as part of their daily routine.
In general, it looks like Pinterest has a growing market, although it currently caters to a specific demographic. The company has managed to turn it into a profitable model, and changes in the advertising industry could give Pinterest users and revenue a future boost.
The future of the company is what determines the value of the stock today. That’s why we’ll see how analysts expect Pinterest to perform and what that means for the stock price.
With that in mind, we’ve rounded up the latest statutory forecasts to see what analysts expect for next year.
See our latest analysis for Pinterest
Pinterest’s 28 analysts now forecast revenue of US$3.12 billion in 2022. That would represent a substantial 21% improvement in sales over the past 12 months. Statutory earnings per share are expected to decline approximately 33% to US$0.32 over the same period. Looking ahead to this report, analysts had modeled earnings per share (EPS) of $0.30 in 2022. Analysts appear to have grown more bullish on the company, judging by their new earnings-per-share estimates.
There were no major changes to the consensus price target of US$40.78, suggesting that the improving earnings per share outlook is not enough to have a positive long-term impact. on the valuation of the action. The consensus price target is only an average of individual analyst targets, so it might be useful to see how wide the range of the underlying estimates is.
The most optimistic Pinterest analyst has a price target of US$65 per share, while the most pessimistic puts it at US$20.
Another way to use analyst estimates is to include them in a valuation model. By doing this for Pinterest, we get intrinsic value value per share of 51 USD. This assumes the company continues to grow and reach cash flow of $2 billion by 2031. Investors who think this isn’t a far-fetched proposition will likely find the company undervalued by around 53% today.
It’s clear that Pinterest has a long way to go before it reaches that point, but a good business model that delivers value to users can gain even wider adoption.
Pinterest is profitable, growing and has underestimated cash flow.
The company is in a great position to grow and possibly earn ad revenue from Facebook. Analysts are also optimistic about the company’s future, with many posting steeply higher price targets.
Our general valuation model also shows that the stock can be significantly undervalued, which does not automatically mean that the price will catch up. It is much more likely that if the company is performing well, we can expect a higher price.
However, before you get too excited, we found out 3 warning signs for Pinterest of which you should be aware.
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Simply Wall St analyst Goran Damchevski and Simply Wall St have no position at any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials.