Cryptocurrency Dogecoin (DOGE +4.88%) has lost more than 70% of its value since early May. This recent performance serves as yet another reminder of how buying into hype can leave investors holding the bag. Although investors may hype some tech stocks, others such as Pinterest (PINS +8.40%) and T-Mobile US (TMUS +0.05%) offer both reasonable valuations and the likelihood of sustained growth.
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1. Pinterest
In the social media sphere, Pinterest stands out as the site fueled by inspiration. Users will share images, explore ideas, and save the "pins" that stoke their imaginations. Pinterest helps companies drive revenue by turning consumer inspiration into sales through "promoted pins," ads designed to look like Pinterest pins.
As of the end of the first quarter, Pinterest attracted 478 million users every month, a 30% increase over the first quarter of 2020. Moreover, the demographics behind this user base should inspire Pinterest bulls. The bulk of its growth came from its international segment, which attracted 37% more users over the same period. Moreover, 45% of its U.S. users claim a household income exceeding $100,000 per year, meaning it draws users more likely to make purchases based on promoted pins.
These factors have translated into higher revenue: The company brought in $485 million in the first quarter of 2021, 78% higher than the year-ago quarter. Moreover, even amid the pandemic, Pinterest increased its 2020 revenue to almost $1.7 billion, 48% above the mark in 2019.
This helped Pinterest's stock rise by over 180% over the last 12 months. Admittedly, that brought the price-to-sales (P/S) ratio up to 23 versus about 12 one year ago. Still, the company expects year-over-year revenue growth of 105% in the second quarter, and it could offer more visibility into future quarters when it announces earnings on July 29. Even with some modest uncertainty and a rising sales multiple, many analysts believe this is the best social media stock to buy now.
2. T-Mobile
Of the three companies offering 5G service in the U.S., T-Mobile may offer the best potential for returns. It is attracting new customers faster than either Verizon Communications or AT&T. It reported 5.6 million net additions in 2020, beating AT&T's 1.6 million and Verizon's loss of wireless customers. Moreover, since it does not pay a dividend, more of its gains will likely go into the stock.
Historically, it has built its advantage through lower pricing. However, the purchase of Sprint removed a competitor and added to its spectrum portfolio. Along with the spectrum purchased this year, it can now improve its product quality, helping it to better compete for business customers.
To that end, T-Mobile spent $3.2 billion on property and equipment in the first quarter of 2021, which will put it on track to rise significantly from the $11 billion spent in all of 2020. This lags AT&T, which spent $15.7 billion, while Verizon allocated $18.2 billion to capital expenditures in 2020.
Nonetheless, it has beat its peers in stock gains, returning just over 40% over the last 12 months. This compares to a 2.8% gain for Verizon and a 5% drop for AT&T during that period.
Trading at 62 times earnings, it is significantly more expensive than its peers, which sport P/E ratios under 20. Still, its faster customer growth and improving service quality increase the likelihood that it will remain the choice for growth investors in the telco space.
Ditching Dogecoin
Cryptocurrencies like Dogecoin have drawn considerable attention over the last few months. However, Dogecoin's path to appreciation has relied heavily on speculative interest.
Conversely, stocks such as Pinterest and T-Mobile have attracted growth based on a history of revenue and customer count increases, trends that will likely continue for the foreseeable future. Instead of relying on hype, these increases should bring the rising income that typically provides the more likely path to positive returns.
