Pinterest Stock is Overpriced, but is it Overvalued?

Pinterest, Inc. (NYSE:PINS) is a popular American social media company focused primarily on image sharing and craft inspiration. The San Francisco based company was founded in 2009 and had its initial public offering (IPO) in 2019. Since going public at $19 per share, PINS has risen about 180% overall, despite  falling as low as $10.10 in March. The stock --which last week received the rare double upgrade -- has recently bounced back in the wake of Snap’s (SNAP) positive earnings blowout last week. With Pinterest set to report earnings on October 28, the company will be looking to keep the momentum moving going forward.

Pinterest has a market cap of $31.83 billion and a book value of $3.20 per share. The company's price-to-book ratio stands at 16.00. The company has a forward price-to-earnings ratio of 169.49 and a trailing price-to-earnings ratio of 94.09. As a reminder, a company's price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that calculates its current share price relative to its earnings per share.

Pinterest has beat expectations on three out of its last four earnings reports. In the most recent quarterly report, the company beat expectations with a slimmer-than-expected loss of -$0.07. Pinterest also beat estimates by $0.06 in the fourth quarter of 2019. Subsequently, in the first quarter of 2020, Pinterest posted a loss of -$0.10, missing expectations by $0.01. As for Pinterest's  upcoming earnings report (due on October 28), Pinterest is expected to report an EPS of $0.02, has a trailing 12-month EPS of -$0.71.




Between 2017 and 2019 the company more than doubled its revenue. In 2018, Pinterest increased revenue nearly $300 million and, in 2019, the company increased revenue by almost $400 million. Pinterest has had a combined revenue of $1.22 billion over the past 12 months, which represents a $100 million increase over 2019.

However, Pinterest's net income has been largely inconsistent over the past four years. In fact, in 2019, the company posted a huge net loss of $1.33 billion. Pinterest's best year was in 2018 where the company only had a net loss of $63 million. Pinterest has yet to have a profitable year on the bottom line. On the bright side, the company is on pace to improve its net losses massively by the end of 2020.

Pinterest currently has $863.62 million in cash and $151.28 million in total debt. The company’s balance sheet holds $2.25 billion in total assets and $343 million in total liabilities. Pinterest's total equity currently stands at $1.91 billion.

Pinterest has many of the same issues that social media companies tend to have: reducing expenses and producing profits on the bottom line. The company’s consistent revenue amid the pandemic bodes incredibly well for Pinterest and represents a good indication of a loyal user-base. This loyalty can mainly be attributed to Pinterest's excellent business model. Whether it's cooking recipes, clothing inspiration, event planning or home decor, most of the content on Pinterest's site revolves around lifestyle. This makes the platform ideal for major advertisers.

Pinterest also has a solid balance sheet with over $700 million more in cash than debt. Overall, Pinterest’s lack of profitability indicates the company is undoubtedly overpriced right now. Nonetheless, the company is likely to continue growing its business, as well as PINS' stock price. If Pinterest beats expectations on its upcoming earnings, it will likely have another spike in the short term.