1 Social Media Stock To Avoid In 2024

When a stock has soared 63% for the year it’s a risky proposition to step in the way of the momentum freight train and short it, but sometimes the highest flying stocks create setups for the biggest crashes. One social media stock that went on a huge run this year falls squarely into that category. If you’re holding it or considering buying it, you won’t want to miss this piece.

Key Points

• Revenue growth at Pinterest has slowed significantly from over 78% in early 2021 to just 6% in 2023.
• It faces declining earnings per share, a high revenue multiple of 8.5x, and lack of profitability. 
• Analysts estimate a fair value of $37.52 per share, suggesting downside risk.

Is Pinterest Price to Perfection?

Back in the first few quarters of 2021, Pinterest revenues were growing like a weed. Management report revenues up by 78.4% year-over-year in Q1 followed by a 125% increase in Q2.

At the time, that pace of growth excited investors, sparking a furious rally where the share price soared to $80 and beyond. Fast forward a couple of years and, remarkably, the top line has continued to grow on a year-over-year basis off of a much higher baseline but the pace has slowed down meaningfully to just 4.8% and 6.3% in the equivalent quarters this year.

Back then, management continually announced operating income in the black but this year each quarter has fallen into the red, and yet the share price has still managed to rise by 63% year-to-date, but it should be noted that it remains more than 50% off the share price highs of 2021.

Having run up so high this year, a discounted cash flow forecast pegs fair value for Pinterest at $34.39 per share, meaning PINS could fall 8% at a minimum. In short, Pinterest is now priced to perfection.

What Does It Mean For 2024?

A few red flags are on the horizon for 2024 for Pinterest shareholders. First off is the concerning decline in earnings per share figures, which eventually Wall Street will punish, if history is a guide.

It’s also trading at a high revenue multiple, sitting now at 8.5x the last twelve month sales. Plus, it has failed to hit profitability over the past year, meaning further risk to the downside.

On a technical basis, the RSI is in overbought territory suggesting the share price is overstretched and the ratio of risk to reward favors the downside.

In the short-term, current shareholders could still enjoy a run-up as momentum powers the stock higher through to the end of the year and the bullish flows stemming from re-collateralization push it up.

The Bottom Line

Analysts estimate that fair value for Pinterest currently sits at $37.52 per share, which translates to marginal downside risk of around 1%.  A cash flows analysis also suggest there is risk of closer to 10%.

When the bullish end of year forces from the Santa Claus rally and January Effect subside, expect Pinterest to be a high risk play when the reality of poorer fundamentals, stemming from negative earnings, take full effect.