Many of the market indices may be reaching new highs, but not many actual stocks. Shares of Pinterest(NYSE: PINS) And GitLab(NASDAQ:GTLB) are trading more than 30% below their 52-week high. PayPal(NASDAQ:PYPL) hit a new 52-week high on Monday, but would need to quadruple from here to regain its all-time high.
All three stocks are owned by Cathie Wood’s Ark Invest collection of exchange-traded funds for risk-tolerant growth investors. She added all three positions on Monday. Let’s take a closer look at Wood’s three latest signings.
There is good news and bad news when it comes to Pinterest. Let’s start with the good news. Pinterest has overcome the swoon after its initial pandemic-era surge in popularity. Users flocked to the visual discovery engine in 2020 and 2021 to get ideas on everything from recipes to home makeover tips. There was a lull in 2022 as global audiences moved outdoors again, but growth is accelerating for the second year in a row.
Year-over-year revenue growth has accelerated in five of the past six quarters. Revenue gains have topped 20% in the first half of this year, something investors haven’t seen since late 2021. The audience has grown by 12% over the past year and has now reached a record 522 million active accounts. The operating result is doing even better: adjusted earnings per share increased by 38% in the latest report.
Image source: Getty Images.
Now let’s look at the bad news. The guidance provided by Pinterest in its latest update was disappointing. The $885 million to $900 million revenue the company is modeling for the current quarter is a step back to growth of between 16% and 18%. Analysts had aimed higher.
The opposite of the bad news is that Pinterest has tended to be conservative. Initially calling for just a 15% increase in sales for the second quarter, it came to fruition with a 21% jump. It also appears to solve the monetization problem that dogged the stock in 2022. Average revenue per user increased by 8% in the latest report.
It’s been three years since rumors started circulating that PayPal was considering an acquisition of Pinterest for $70 per share. Facing a backlash from PayPal shareholders, the fintech giant announced it is no longer exploring a purchase of Pinterest. With Pinterest stock trading at $30 and currently in flux, it’s easy to see this as a missed connection for the social bookmarking site. But that’s only half the story of the proposed link. PayPal reportedly offered a largely stock-based deal, and its own shares have fallen by more than two-thirds in that time.
PayPal was a popular fintech pioneer in its prime, but growth investors have looked elsewhere. PayPal has achieved seven consecutive quarters of single-digit percentage growth. The upside to this is that PayPal is reasonably priced, something no one said three years ago when the stock was at its peak. You can buy PayPal for multiples of earnings in the teens.
Some other players in this promising space are growing faster, but PayPal isn’t going away just because it surpasses $5 billion in annual free cash flow. It is a force with its 429 million active users. Total payment volume is accelerating, up 11% in the last quarter.
It may be surprising to see GitLab stock trading closer to its 52-week low than its high. The company behind a flexible cloud-based platform that helps an organization’s technology team build, test and deploy software posted a strong beat and raise quarter earlier this month. It has routinely smashed Wall Street’s profit targets, coming in at least 50% higher in the past year than where Wall Street’s pros are parked.
Revenue growth has slowed, but the company is still growing at a pinch of over 30%. The stock may not be cheap – it trades at well over a hundred times this fiscal year’s expected earnings – but healthy momentum justifies a market premium. The stock has yet to recover from the early March slump when it warned of slowing growth this fiscal year, but the latest update is encouraging and the AI-assisted software development offering is promising. Wood is a believer at current levels.
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Rick Munarriz has no positions in any of the stocks mentioned. The Motley Fool holds positions in and recommends GitLab, PayPal, and Pinterest. The Motley Fool recommends the following options: Short September 2024 $62.50 calls on PayPal. The Motley Fool has a disclosure policy.
Cathie Wood Goes Bargain Hunting: 3 Stocks She Just Bought was originally published by The Motley Fool
