The financial world is full of opinionated people, from YouTube influencers and podcast pundits to journalists and Wall Street analysts. But investors should never follow advice blindly, and they should always evaluate the credentials of the person offering advice. For instance, hedge fund managers Jason Kritzer and Karthik Sarma have outperformed the S&P 500 over the last three years, which makes them a good source of inspiration, and both investors have been buying stocks throughout the bear market that started in early 2022.
Notably, Kritzer increased his stake in Shopify (SHOP 0.23%) more than sevenfold since the beginning of last year. Meanwhile, Sarma started a position in Shopify and increased his stake in Pinterest (PINS -1.55%) more than 15-fold; those holdings collectively account for almost 10% of his portfolio.
Those purchases suggest a high degree of conviction, but they are especially noteworthy because Kritzer and Sarma have consistently beat the market, and that puts them in rarified air among professional investors.
1. Shopify
Shopify is the leading e-commerce software vendor in terms of market presence and user satisfaction, according to research company G2. That success stems from its ability to simplify omnichannel commerce for sellers. Its software integrates with online marketplaces, social media networks, and direct-to-consumer (DTC) websites, allowing businesses to manage sales across a variety of physical and digital channels from a single platform. That differentiates Shopify from larger e-commerce companies like Amazon in a meaningful way, as DTC business models make it easier for sellers to build lasting customer relationships.
Shopify has struggled as economic conditions have worsened over the past year. Third-quarter revenue rose just 22% to $1.4 billion, and the company reported a non-GAAP (adjusted) loss of $0.02 per share, down from a non-GAAP profit of $0.08 per share a year earlier. But shareholders have good reason to believe growth will reaccelerate as inflation falls and consumer spending rebounds.
According to eMarketer, global retail e-commerce sales will grow at 10% annually to reach $7.4 trillion by 2025, and Shopify has already carved out a strong position in that market. Not only is it the leading e-commerce software vendor, but it also ranks as the second-largest e-commerce company in the U.S., behind Amazon. Better yet, management is executing on an ambitious growth strategy -- geographic expansion, moving upmarket with Shopify Plus, and simplifying logistics with the Shopify Fulfillment Network -- that could help the company increase its market share in the years ahead.
With that in mind, shares currently trade at 9 times sales, a bargain compared to the three-year average of 35.2 times sales, and a reasonable price to pay given Shopify's strong foothold in a large and growing market. Investors should seriously consider buying this growth stock today.
2. Pinterest
Pinterest is a social media network designed for inspiration. The platform leans on artificial intelligence (AI) to help users discover personalized visual content across a variety of categories, including fashion, beauty, cooking, and home décor. In other words, Pinterest is tailor-made to gather data on consumer tastes and preferences. Because people come to Pinterest in search of inspiration, the platform has the potential to be a valuable advertising tool for brands and marketers.
Unfortunately, Pinterest reported lackluster results in the third quarter. Monthly active users (MAUs) remained flat, revenue increased 8% to $685 million, and non-GAAP net income dropped 61% to $0.11 per share. But there is a silver lining for shareholders. Management is executing on a smart growth strategy that could help Pinterest reaccelerate growth, especially in a more consumer-friendly economy.
Specifically, Pinterest is pushing into social commerce. Earlier this year, it debuted new tools to simplify product uploads and inventory management for brands, and it launched Your Shop for consumers, a personalized shopping experience powered by AI. Pinterest is also piloting a hosted checkout solution with Shopify, which aims to reduce friction by allowing consumers to make purchases without leaving the platform.
Looking ahead, Pinterest sits in front of a large and growing market opportunity. According to eMarketer, social media ad spend in the U.S. alone will increase by 10% annually to reach $79 billion by 2024, and social e-commerce sales in the U.S. will increase by 26% annually to reach $107 billion by 2025. However, investors should bear in mind that Pinterest faces tough competition from social giants Meta Platforms and ByteDance (the parent of TikTok), which rank as the second- and fifth-largest digital advertisers in the world, respectively.
Currently, shares trade at 6 times sales, a bargain compared to the three-year average of 13.3 times sales. That creates a reasonable buying opportunity, but investors should closely monitor MAUs in the coming quarters. If Pinterest fails to reaccelerate user growth, its ability to take share in digital advertising and social commerce would be severely limited, and that would likely break the investment thesis.
