Please ensure Javascript is enabled for purposes of website accessibility

Here's My Top Growth Stock to Buy Right Now

By Will Ebiefung – Sep 14, 2021 at 9:19AM

Key Points

  • Like many online companies, Pinterest is facing challenges as pandemic-related tailwinds fade in the U.S.
  • The company's long-term thesis remains intact as it monetizes a massive international userbase and creates new growth drivers.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Pinterest's recent dip is a buying opportunity. Here's why.

Want to beat the market? Invest in growth stocks. These are shares in companies that increase revenue and profits faster than average, which can help them generate massive returns over the long term. This exciting asset class has crushed the broader market's returns in recent years. Pinterest (PINS -3.86%) fits the bill with its rapidly expanding social media platform. Let's explore why it is a great growth stock to buy at a discount today.

The stay-at-home trade is over 

While the coronavirus pandemic is far from over, 2020's stay-at-home trend has started to fade, hurting the operating results of online-focused companies. Pinterest's second-quarter sales soared 125% to $613 million, powered by a surge in average revenue per user (ARPU). But investors were disappointed by the slowdown in monthly active users (MAU), which only increased 9% year over year to 454 million -- that's down from a 30% growth rate in the previous quarter. 

Archery target with a green money sign in the middle. Three arrows hit the bullseye.

Image source: Getty Images.

The company experienced lower consumer engagement as people spent less time online as the world reopened. Perhaps investors should have seen this headwind coming, but the earnings report sent Pinterest's stock down by 29% to date since July 29. Ultimately, this dip could be a buying opportunity because Pinterest's long-term value proposition as a super-targeted, e-commerce-friendly social media platform remains intact. 

Pinterest is just getting started

The great thing about Pinterest is that its consumers often use it to search for items they already know that they are interested in buying (clothes, home decor, handbags, etc.). This motivated userbase helps the platform attract advertisers and increase its ARPU. Management is building on this advantage by partnering with e-commerce company Shopify to help merchants upload their items as shoppable product pins.  

Pinterest's global ARPU jumped 89% year over year to $1.32. Domestic revenue doubled to an average of $5.08 per user. International APRU grew faster at 163% -- but with an average ARPU of just $0.36, Pinterest has a massive opportunity to narrow the gap between these two segments. 

The company's largely untapped international monetization could help it overcome slower user growth and boost profits. Its long-term plans don't end there. According to CEO Ben Silbermann, Pinterest is transitioning from a place to find and save images to a lifestyle platform where people can share their passions through interactive videos. This pivot can help it piggyback off the soaring popularity of video-sharing apps such as TikTok, and boost the platform's user engagement. 

Growth at a discount 

Pinterest has generated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $654 million over the last four quarters. With a market cap of $36 billion, it trades for just 55 times this figure. That's a pretty attractive valuation considering the company's second-quarter revenue increased at a triple-digit clip, and it enjoys plenty of growth drivers to keep the momentum strong. 

Pinterest's user growth deceleration is cause for concern for some investors. But the company went against exceptionally difficult comps this period and enjoys plenty of runway for revenue growth by leveraging its shopping motivated userbase to boost ARPU, especially in its less monetized international markets. 


Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Pinterest and Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.

Stocks Mentioned

Pinterest Stock Quote
$23.90 (-3.86%) $0.96
Shopify Stock Quote
$41.51 (-3.60%) $-1.55

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.