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Why Pinterest Stock Dropped 6% Today

Rich Smith, The Motley Fool
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What happened

Shares of recent IPO Pinterest (NYSE: PINS) -- a strong performer since its initial public offering three weeks ago -- gave back some of their gains today, falling 6% as of 2:55 p.m. EDT after 10 of the company's 12 underwriters took advantage of the expiry of their post-IPO quiet period to publish ratings on Pinterest stock.

Of the 10, only two -- Citigroup and Baird -- said investors should buy Pinterest at its current price of $$27 and change (up 45% from the IPO price). According to a tally published by TheFly.com, all the rest said "hold."

Businesswoman shrugging shoulders
Businesswoman shrugging shoulders

Image source: Getty Images.

So what

Reasons for the analysts' reticence to endorse a stock they so recently underwrote weren't hard to identify. Barclays Bank, for example, didn't like the stock's valuation, which is now 19 times trailing sales, while Deutsche Bank said the prospects for the stock getting even more expensive looked "blurry."

RBC Capital suggested Pinterest would grow its user base and its revenue per user by double-digit percentages over the next few years -- but even assuming it does that, the stock is still too expensive to deserve a buy rating.

Now what

Pinterest currently has no profits to its name, but analysts who follow the stock think the company could turn profitable by perhaps 2022. That's a long time to wait for value investors. Meanwhile, growth investors may become discouraged by Pinterest suddenly being subjected to the laws of gravity and decide that now's a good time to take some profits and look for the next momentum stock.

At least, that's how things look today.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.