Pinterest, Inc., the social media company characterized with pinning your interests, went public with an IPO last week under the ticker PINS. Pinterest's stock went up 28.42% on its first day of trading to 24.40 USD currently boasting a market capitalization of 12.92 billion USD.
Is Pinterest Inc., overvalued, undervalued or fairly valued?
I think Pinterest is overvalued. The intrinsic worth of Pinterest, according to my opinion, is about 8 billion USD. Why? Because Pinterest currently trades at about 15 times Price/Sales(trailing year revenue) ratio. Facebook, also showing robust growth, trades at about 9 times Price/Sales ratio. Pinterest revenue grew in 2018 by circa 57% compared with 2017. Actually, Pinterest is close to profitability by losing minor 63 mln. USD in 2018. Apparently, this is what investors like, which caused the pop in Pinterest's stock market price. Facebook, however, exhibited a net profit marging of circa 34% in 2018.
Basically, all signs point to the fact that we are in the latest stages of an Information Technology bubble much like the dot com boom and bust in 2001. Yes, I know this time the technology stocks do have revenue, but they are overvalued by approximately 30% on average. And when the tide stops, many "investors will be caught swimming naked" as my idol Warren Buffett says.
Yes, soon in 1-3 years, there will be a US and global stock market crash, caused by the bursting of the current technology bubble. But as Joseph Schumpeter says creative destruction is the engine of capitalism. From the ashes of the crash, several large information technology companies will survive, rise like a phoenix and remain the new leaders of tomorrow, much like Google and Amazon did in the last dot com boom and bust. I think Facebook, Twitter, Snapchat and LinkedIn will survive, because social media is here to stay. Pinterest could also survive. After the crash, capital flows will again go primarily to emerging markets, because emerging markets stocks are way undervalued as they are.
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Kind regards,
Petar Posledovich
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