Many of the market indexes may be hitting fresh highs, but the same can't be said of many actual stocks. Shares of Pinterest(NYSE: PINS) and GitLab(NASDAQ: GTLB) are trading more than 30% off their 52-week highs. PayPal(NASDAQ: PYPL) hit a fresh 52-week high on Monday, but it would still have to quadruple from here to revisit its all-time peak.
All three stocks are owned by Cathie Wood's Ark Invest collection of exchange-traded funds for risk-tolerant growth investors. She added to all three positions on Monday. Let's take a closer look at Wood's three latest buys.
1. Pinterest
There's 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 its global audience began heading outside again, but growth is accelerating for the second year in a row.
Year-over-year revenue growth has accelerated in five of the last six quarters. Top-line gains have topped 20% through the first half of this year, something that investors haven't seen since late 2021. Its audience has widened by 12% over the past year, now clocking in at a record 522 million active accounts. The bottom line is faring even better, as adjusted earnings per share soared 38% in its latest report.
Image source: Getty Images.
Now let's turn to the bad news. The guidance that Pinterest provided in its latest update was disappointing. The $885 million to $900 million in revenue that it's modeling for the current quarter is a step down to between 16% and 18% growth. Analysts were holding out for higher.
The counter to the bad news is that Pinterest has been conservative before. It was initially calling for an increase in revenue of just 15% for the second quarter, but it came through with a 21% jump. It also seems to be solving the monetization problem that was dogging the stock back in 2022. Average revenue per user rose 8% in its latest report.
2. PayPal
It's been three years since reports began swirling of PayPal considering a buyout of Pinterest for $70 a share. Facing a backlash from PayPal shareholders, the fintech giant went on to announce that it's no longer exploring a purchase of Pinterest. With Pinterest stock trading for $30 and change right now, it's easy to peg this as a missed connection for the social bookmarking site. But that is just half of the proposed pairing's story. PayPal was reportedly offering 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 turned elsewhere. PayPal has rattled off seven consecutive quarters of single-digit percentage growth. The upside here is that PayPal is reasonably priced, something that no one was saying three years ago when its shares were peaking. You can buy PayPal for an earnings multiple in the teens.
Some other players in this promising space are growing faster, but PayPal isn't going away as it tops $5 billion in annual free cash flow. It's a force with its 429 million active users. Total payment volume is accelerating, up 11% in its latest quarter.
3. GitLab
It may be surprising to see shares of GitLab trading closer to its 52-week low than its high. The company behind a flexible cloud-based platform that helps an organization's tech team build, test, and deploy software posted a strong "beat and raise" quarter earlier this month. It has routinely blasted through Wall Street profit targets, landing at least 50% ahead of where Wall Street pros are parked over the past year.
Revenue growth has slowed, but the business is still growing at a better-than-30% clip. The stock may not be cheap -- trading for more than 100 times this fiscal year's projected profit -- but healthy momentum warrants a market premium. The stock has yet to recover from the early March stumble when it warned of decelerating growth this fiscal year, but its latest update is encouraging, and its AI-assisted software development offerings are promising. Wood is a believer at current levels.
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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has 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.
