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Pinterest Inc. (PINS) stock soared 19% on Friday after posting strong revenue, EBITDA, and free cash flow (FCF) results. Is it time to buy? Based on its guidance and analysts' projections, Pinterest's FCF could spike, implying a higher valuation.
PINS closed at $40.00 on Friday, Feb. 7, up 19% from its results released on Thursday, Feb. 6, after the market closed. My model shows that PINS stock could be worth 15% more, or $46 per share.
This article will show how this works out and one way investors can play PINS stock after its recent rise.
Strong EBITDA and FCF Results
Pinterest, which makes revenue from advertising on its visual search platform for goods, reported its first billion-dollar sales quarter, up 17.6% YoY to $1.15 billion. In addition, its annual revenue rose 19.3% YoY to $3.646 billion.
The company is now extraordinarily profitable, as can be seen in its EBITDA (earnings before interest, taxes, depreciation, and amortization) and FCF performance.
For example, its adjusted EBITDA rose 28% in Q4 to $470 million, representing an astounding 41% margin on sales. In addition, its free cash flow (which includes more cash expenses than EBITDA) hit $250.2 million, representing 21.7% of sales.
In addition, as the table above shows, its 2025 FCF margin was very high at over 25% of sales. That is useful since we can use this project its future FCF.
Projecting FCF
There are two ways to project Pinterest's FCF. We can average these to forecast its future value.
Analysts' Estimates. One way is to use analysts now estimate that sales in 2025 will rise by 15.7% to $4.22 billion, and by 2026 to $4.85 billion. That puts it on a next 12-month (NTM) run rate average of $4.535 billion, or +24.3% over 2024's sales.
As a result, if Pinterest keeps generating FCF at a margin of 25.8% of sales, it could generate $1.17 billion in FCF:
$4.535 NTM sales x 0.258 = $1.17 billion FCF
This is over 24% higher than its $940 million in FCF last year.
EBITDA Conversion. Another way to estimate its FCF is to use its “conversion rate.” For example, the table below from the company shows how this works:
It shows that in the past year, Pinterest has converted 91% of its adj. EBITDA cash flow into free cash flow (FCF). That is a technical way of saying that after all cash expenses, including capex and changes in working capital, which are not included in adj. EBITDA, the company still generated strong FCF.
This is important since Pinterest likes to forecast its profitability in terms of EBITDA and EBITDA margins. For example, for Q1 2025, Pinterest gave guidance that it will generate between $155 to $170 million in adjusted EBITDA on revenue of $837 million to $852 million. Here is how that averages out:
$162.5 m adj. EBITDA / $845 million revenue = adj. EBITDA margin of 19.2%
So, if the company averages a 91.5% conversion rate into FCF, this implies its FCF margin could work out to 17.6%.
Moreover, last year the company earned an adj. EBITDA margin of 28%. So, if it can keep converting 91.5% of that into free cash flow (FCF):
0.28 x 0.915 = .256 = 25.6% FCF margin
So, next year, using analysts' revenue forecasts of $4.22 billion, FCF could reach $1.08 billion:
0.256 x $4.22 billion 2025 revenue estimate = $1.08 billion FCF
So, on average we can forecast Pinterest will make between $1.08 billion and $1.17 billion, or $1.125 billion in FCF over the next 12 months. That is 19.7% higher than its $940 million over the last year. We can use this to set a valuation for PINS stock.
Using FCF Yield to Value PINS Stock
Pinterest does not pay a dividend. But if it were to pay out 100% of its $940 million in FCF over the last year, its dividend yield would be 3.48%:
$940m FCF / $27.03 billion market cap today = 0.0348 = 3.48% yield
In other words, after Friday's 19% stock price surge it now has a 3.48% FCF yield. Let's use that to project out its forward value.
For example, using our projection of $1.08 billion in FCF going forward, the stock would have to have a $31 billion market value:
$1.08 billion NTM FCF / 0.0348 = $31.03 billion mkt value
That is almost 15% higher (i.e., $31b/ $27b = 1.148) than today's $27 billion market cap. In other words, PINT stock is worth 14.8% more, or about $46 per share:
1.148 x $40.00 = $45.92
Analysts Agree
Yahoo! Finance reports that 42 analysts have an average price target of $44.93, or +12.3% higher. Similarly, AnaChart's survey of 31 analysts is $43.19 per share, or +8% higher.
Moreover, many of these analysts are likely to raise their price target projections, after today's strong results.
One way to play this, after PINS stock's recent surge, is to set a lower buy-in target price by selling short cash-secured out-of-the-money (OTM) put options in nearby periods.
Shorting OTM Puts
For example, look at the March 7, 2025, expiration period, 27 days from now. It shows that the midprice for the $36.00 strike price put option is 20 cents.
That means that an investor who is willing to buy the shares 10% below today's price can earn an immediate yield of 0.555% (i.e., $0.20/$36.00).
This is what happens when an investor secures $3,600 in cash or buying power with their brokerage firm. That acts as cash-secured collateral in cash PINS falls 10% to $36.00 anytime over the next month.
However, the investor gets to keep the $20 for every put option contract sold short this way. That is why this investment produces a 0.55% yield (i.e., $20/$3,600).
If the investor is willing to take on more risk, they can sell short the $37.00 strike price, which is 7.50% below today's price. That provides a midprice premium of $38 for $3,700 in cash collateral, or a short-put yield of 1.02% (i.e., $38/$3,700).
Moreover, the investor has a lower breakeven of $37.00 - $0.38, or $36.62, 8.45% below the $40.00 price on Friday, Feb. 7.
In other words, this is a way to get paid while setting a lower buy-in target price.
The bottom line is that Pinterest stock still looks undervalued, even after its recent surge. That is based on its strong FCF margins. One way to play this is to sell short out-of-the-money (OTM) put options in nearby expiry periods.
