A wise investment may sometimes defy consensus. That could be the case with Pinterest (PINS -3.50%) and Peloton Interactive (PTON -3.33%). As a result of the many challenges they are experiencing, their stock values have significantly declined.
Due to overinvesting in capacity during its peak sales season, Peloton’s problems are more serious. Pinterest’s might decline if macroeconomic headwinds weaken since they are less strong. Whatever the case, it will take some time for these businesses to regain their momentum.
If you have $5,000 that you won’t need for many years, it would be a good idea to invest in Peloton and Pinterest stocks.
Believing that the good days will last forever
The company Peloton was built to succeed in a pandemic. It offers interactive fitness equipment, which saw a surge in consumer demand when governments temporarily shut down gyms. Peloton struggled to meet demand. Customers once had to wait more than ten weeks for their items to arrive.
Unfortunately, it marked the start of Peloton’s problems. At the time, management anticipated that this increase in client activity would persist. As a consequence, it made significant investments in expanding its production capabilities.
The demand for Peloton’s workout equipment dropped significantly shortly after economies began to recover. Sales have declined in the first nine months of fiscal 2022, which concluded on March 31 after increasing by more than 120% in 2021. Total operational expenditures have increased from $1.1 billion to $2.2 billion, while total revenue has decreased from $3.1 billion to $2.9 billion. Given these facts, it is not surprising that the stock has fallen significantly from its highs.
Peloton is now trading at a price-to-sales ratio of 1.1, which is close to the lowest in its brief existence as a public business, suggesting that the fall may have been exaggerated. To address the overcapacity, the newly appointed CEO has taken a number of cost-cutting measures, such as selling its manufacturing business and outsourcing the work.
In the two years before the COVID-19 epidemic, Peloton’s income increased by nearly 100%. The firm will probably resume growing in due course, making this a potentially smart moment to purchase the shares.
User losses on Pinterest have been suspended
Pinterest faces challenges as customer behavior changes once again, much like Peloton. During a period when billions of people spend the majority of their time inside, the image-based social network firm prospered. Engagement on the Pinterest app is decreasing as people choose to spend more time entertaining themselves outside of the house. Pinterest reached a record of 454 million monthly active users in Q2 of 2021 before declining to 433 million most recently.
The app for Pinterest is free to download and use, and it earns money by displaying adverts. Therefore, user counts are important. If advertisers can influence more consumers’ purchase choices, they are ready to spend more. That may help to explain why Pinterest’s revenue growth dropped from 125% in the second quarter of 2021 to 9% in the second quarter of 2022. The stock of Pinterest has dropped 74% from its peak, perhaps as a result of these weakening prospects.
Pinterest’s stock is now trading at a price-to-free cash flow ratio of 23, which is close to its lowest level in the previous year. From $473 million in sales in 2017 to $2.6 billion in 2021, Pinterest has shown strong revenue growth. This expansion was sufficient enough to provide a $326 million operational profit in 2021.
The coronavirus pandemic is causing a number of issues that are harming the market for advertising, such as a lack of materials, increased expenses, and quickly shifting consumer demand. These trends will eventually reverse as the fight against COVID-19 gains momentum throughout the globe.
But the impending challenges provide astute investors the opportunity to purchase this growing company at a discount.
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