Pinterest shares fell by -1.8% during the day's afternoon session, and are now trading at a price of $31.59. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
Pinterest's P/B and P/E Ratios Are Higher Than Average:
Pinterest, Inc. operates as a visual discovery engine in the United States and internationally. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 27.16 and an average price to book (P/B) ratio of 6.23. In contrast, Pinterest has a trailing 12 month P/E ratio of -98.7 and a P/B ratio of 7.58.
When we dividePinterest's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.77, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
The Business Has Negative Margins on Average:
| 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|
| Revenue (MM) | $1,143 | $1,693 | $2,578 | $2,803 | $2,872 |
| Gross Margins | -122% | -8% | 13% | -4% | -13% |
| Operating Margins | -119.0% | -8.0% | 13.0% | -3.0% | -11.0% |
| Net Margins | -119.0% | -8.0% | 12.0% | -3.0% | -10.0% |
| Net Income (MM) | -$1,361 | -$128 | $316 | -$96 | -$291 |
| Free Cash Flow (MM) | -$33 | $11 | $744 | $440 | $370 |
| Capital Expenditures (MM) | $34 | $17 | $9 | $29 | $12 |
| Net Current Assets (MM) | $1,698 | $1,990 | $2,683 | $2,874 | $2,432 |
| Long Term Debt (MM) | $127 | $105 | $161 | $134 | $118 |
| LT Debt to Equity | 0.06 | 0.05 | 0.05 | 0.04 | 0.04 |
Pinterest has healthy debt levels, growing revenues and decreasing reinvestment in the business, and a strong EPS growth trend. However, the firm suffers from slimmer gross margins than its peers and consistently negative margins with a positive growth rate. Finally, we note that Pinterest has irregular cash flows.
