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Why Pinterest Stock Jumped on Friday

By Daniel Sparks – Dec 17, 2021 at 3:43PM

Key Points

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Investors are pouncing on Pinterest shares. Is the stock's dramatic decline this year a buying opportunity?

What happened

Shares of visual search and media company Pinterest (PINS -1.27%) jumped on Friday. The stock was up nearly 6% as of 3 p.m. ET.

The stock's gain comes as many tech stocks rebound from a sharp sell-off on Thursday. Growth tech stocks like Pinterest, in particular, are rebounding sharply today.

A chart showing a stock price rising.

Image source: Getty Images.

So what

On Thursday, many tech stocks were hit hard as the market digested the implications of the Federal Reserve's commentary on its expectations to raise interest rates in 2023. Some investors may contend that reduced liquidity could suppress valuations of some growth stocks.

But some investors may believe that growth tech stocks have sold off too sharply this year, creating a buying opportunity. Many growth tech stocks, including Pinterest, have underperformed or even fallen in 2021. Pinterest stock, for instance, is down 44% year to date. An argument could be made that the market has anticipated interest rates to rise for some time and has already priced in eventual rate hikes.

Highlighting the upbeat day many tech stocks are having on Friday, the tech-heavy Nasdaq Composite is up 0.3% today while the S&P 500 is down 0.6%. Much of tech's outperformance is related to strong gains from shares of fast-growing tech companies.

Now what

While growth tech stocks are difficult to value since much of their perceived value is based on estimates of cash flows far into the future, one thing is certain: Pinterest stock is significantly cheaper now than it was earlier this year. The stock's price-to-sales ratio stands at about 10 today, down from levels above 30 at one point in the first half of 2021.

While there are risks to owning any stock, opportunistic investors buying Pinterest shares today may be onto something.

Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns and recommends Pinterest. The Motley Fool has a disclosure policy.

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