Here's My Top Growth Stock to Buy Now

Growth stocks were an unstoppable force on Wall Street after the end of the Great Recession as historically low lending rates and the Federal Reserve's easy money policies provided companies with cheap capital to expand their businesses.

Since late 2021, however, growth stocks have fallen out of favor, and with the U.S. on the brink of being in an official recession, these former high flyers are having difficulty finding love in the market. Yet it will be growth stocks that end up leading us higher again, and Pinterest (NYSE: PINS) is one of those companies that could soar even if the economy turns even sourer. In fact, a recession just might have Pinterest making you richer now -- and in the future, too.

Shopper with credit card looking at tablet computer.

Image source: Getty Images.

Ready for a rebound

Social sharing platform Pinterest was a pandemic-era darling that's fallen on hard times. It's lost almost three-quarters of its value since hitting an all-time high of $90 in February 2021. As the economy reopened, the passion for pinning ideas on home remodeling, diet and weight loss, and any number of other stay-at-home activities cooled considerably.

But hard times could make Pinterest popular again. People will be looking for ideas for things to do when business turns up again, and -- because Pinterest is a beacon for advertisers since its users are looking to spend their money on things -- it should remain a source of strength.

It's happening already. Even though the economy has contracted for two consecutive quarters -- a common definition of a recession, although not the official one -- and advertisers generally are pulling back on their digital spending (just check the earnings reports of Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Meta (NASDAQ: META), and Snap (NYSE: SNAP)), Pinterest is still seeing robust advertising dollar growth.

In its second-quarter earnings release last month, Pinterest reported that revenue grew 9% year-over-year and 16% sequentially on increased spending by large retail advertisers. While Pinterest saw weakness from big box and mid-tier retailers, e-commerce and specialty retailers more than made up for their loss.

Innovating for growth

The photo pinning site also seems to have staunched the loss of monthly active users. While the second quarter's number of 433 million was 5% below the year-ago count, it was flat from the first quarter and suggested that Pinterest has hit bottom already. More importantly, though, Pinterest reported a 17% increase in global average revenue per user, which is what advertisers like to see.

That's also circumstantial evidence of the "hard times equate to better performance" theory. As the economy worsened, consumers once again turned to Pinterest. No one's suggesting that an outright collapse will lead to boom times, but there's an argument to be made for a certain level of inverse performance.

It's also because Pinterest continues to innovate, and not just rest on the idea that what it has is good enough. A case in point is Shuffles, its Instagram-like, collage-creating app that rocketed out of the gate to land as the top app in Apple's (NASDAQ: AAPL) AppStore Lifestyle category (it has since eased back to 77th, but remains a five-star-rated app).

The app is something Pinterest can use to help advertisers further target their focus demographics. Users willingly share exactly the kind of topics they're interested in, and since Pinterest is investing in site tags, in-house measurement tools, and new tools like enhanced matching, which matches conversion data with the person responsible for the conversion, the impact of user tracking roadblocks such as Apple's privacy protocols can be significantly offset.

Cheap where it matters

Pinterest's stock isn't cheap -- it still trades at 67 times trailing earnings -- but at 20 times the free cash flow it produces and six times sales, the idea-sharing site is at some of its lowest levels ever since it went public.

Pinterest has the potential to grow into a giant e-commerce stock in its own right due to its substantial and committed user base. It continues to be an attractive target for advertisers, one that will benefit Pinterest's bottom line no matter the market conditions. Therefore, Pinterest looks like a solid buy today.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet (A and C shares), Apple, Meta Platforms, Inc., and Pinterest. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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