Despite the doubters and the short-sellers, Pinterest (NYSE:PINS) stock continues to soar to new highs. But now investors are getting something in Pinterest stock they rarely get: a huge opportunity to buy after great news.
Pinterest reported earnings on the evening of Oct. 28 and shares soared as much as 40% in the following session. However, Pinterest stock could not maintain those highs, closing higher by “just” 28% on the day.
From its highs on Oct. 29 to its lows on Nov. 2 — a span of three trading sessions — shares fell over 18%. Some will see that as a red flag. I see it as an enormous opportunity.
Here are three reasons why.
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A Monster Quarterly Beat
For its fiscal Q3 report, Pinterest reported earnings of 13 cents per share, 10 cents ahead of expectations. Additionally, revenue surged well past expectations. Sales of $443 million grew 58% year-over-year and beat estimates by more than $59 million.
Revenue estimates stood at just $383.5 million for the quarter. The final tally came in 15.4% ahead of estimates. Pinterest also topped the highest expectations on Wall Street.
It gets better, though.
Management guided for fourth-quarter revenue growth of 60% year-over-year. That’s a great acceleration sequentially from this quarter, and it implies Q4 sales of $640 million. Further, monthly active users of 442 million grew 37% versus the same period a year ago and beat expectations of 436 million.
In short, this quarter blew away every expectation in the book and management’s outlook is even better.
Pinterest Stock Has Makings of a Winner
A lot of investors keep underestimating this name. The truth is though, it has plenty of growth, great conversion rates and a strong balance sheet.
This stock gets lumped into the social media space, which is wrong because it’s not really a social online medium. Instead, it’s an inspiration medium — a pre-shopping source, if you will. Mainly leveraged by women for projects, art, crafts and decoration, it’s increasingly become a source of inspiration for men too. Tiling, decking, art and other hobbies continue to make Pinterest more relevant to a wider audience.
Overall average revenue per user (ARPU) climbed 15% year-over-year. In the U.S., ARPU rose 31%, while international ARPU surged 66%. Regarding the latter, ARPU came in at 21 cents, just a fraction of U.S. ARPU of $3.85.
The bear case has been predicated on the lack of international ARPU growth. While still small, it’s moving in the right direction.
Analysts expect Pinterest to swing to a profit this year, earning 27 cents a share. Next year, estimates more than double to 58 cents per share.
Revenue is forecast to come in at $1.63 billion this year and $2.29 billion next year. The two-year estimate (which is admittedly difficult to predict and could be conservative based on how the last quarter just went) comes in at $3.03 billion.
Cash, equivalents and marketable securities totaled $1.65 billion. Current assets weigh in at $2.03 billion while current liabilities sit at just $189.6 million. So not only is growth booming, but Pinterest has a very strong balance sheet.
Trading PINS Stock
Last but not least, the technicals are attractive here. Pinterest has short-term momentum after its latest report and secular growth in its business.
Since the dip in May, Pinterest stock has done nothing but chug higher, pause, then break out to the upside. That’s particularly true over the past few months.
After coming in hard after earnings, I’m looking for shares to firm up and move higher. This was an excellent report, and it shouldn’t have been sold off so hard from the highs. If anything, this dip gave investors a chance to buy.
The InvestorPlace Research Staff member primarily responsible for this article held a long position in PINS.
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