Pinterest stock crashes below key price: Is it a bargain or a value trap?

Pinterest stock has sold off sharply over the past few months and now sits at its lowest level since May 21. PINS fell to $18.28, down 60% from its 2024 high and 30% below where it started the year. Despite the stock's cheap valuation, the selloff may not be over yet.

Pinterest’s revenue growth is slowing

PINS stock has been in a strong downward trend in the past few months as concerns about its growth remain. It is also in a highly competitive industry, where companies like TikTok and Meta have a commanding market share.

The most recent results showed that its revenue and user growth continued doing well in the second quarter. Its revenue jumped by 18% to $1.18 billion, a modest figure for a relatively niche platform. The number of monthly active users rose by 11% to 640 million.

Most of this revenue came from the United States and Canada, which jumped by 18% to $880 million. Its European and Rest of World revenue rose by 12% and 38%, respectively. The challenge, however, is that its US and Canada monthly active users rose by just 4%.

Analysts predict that Pinterest’s revenue will continue to grow, albeit at a slower pace. Its third-quarter revenue is expected to come in at $1.21 billion, up by 14.8% on an annual basis. 

For the year, analysts expect that its annual revenue will come in at $4.91 billion, up by 16.3% from last year. The company is also expected to grow its profits, partly because of its investments in artificial intelligence and the recent layoffs.

Slow growth has made it a bargain

Notably, Pinterest has become a bargain company as its growth has slowed. Its forward price-to-earnings ratio stands at 9.91, much lower than the sector median of 13.3. This multiple is also much lower than the five-year average of 25. 

The cheap valuation makes it a possible buyout target, possibly by a company in the private equity industry. Also, because of its data, it may become an acquisition target by a company in the AI industry. This is one reason why Elliot Management has taken a stake.

This multiple explains why the management has continued repurchasing its stock. It spent $2 billion in repurchasing its shares. At the same time, it entered a capped call to raise the effective dilution breakpoint on its convertible notes to $30.59. 

PINS stock technical analysis

Pinterest stock chart | Source: TradingView

The daily chart shows that the PINS stock has slumped in the past few weeks, moving from a high of $25.60 on August 4. A closer look shows that it has formed a rounded top. 

The Average Directional Index (ADX) has jumped to 22.37, its highest level since July 16 this year. A soaring ADX is a sign that a trend is gaining momentum.

The stock has dropped below the 50-day moving averages and the Ultimate Support level of the Murrey Math Lines tool. Therefore, the stock will likely continue falling, potentially to $10. In the future, however, the stock will bounce back as investors buy the dip.