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The idea-sharing platform Pinterest was one of the buzziest initial public offerings last year: The company went public in April 2019, which means investors can now buy Pinterest stock under the ticker symbol PINS.
But just because its stock is now available, does that mean you should buy Pinterest? Maybe ... or maybe not. Here's what to consider before you buy Pinterest stock.
1. Know Pinterest, the company
Maybe you’re already an avid “pinner,” someone who uses Pinterest to post photos that inspire you. But whether or not you use Pinterest, as a potential investor it’s important to understand how the company makes money, its prospects for growth and other key financial data.
“You can learn a lot about a company from its S-1, the form it files before going public.”
You can learn a lot about Pinterest from its S-1 filing, the form companies file with the Securities and Exchange Commission before going public. Pinterest’s S-1 included information on how it markets itself to advertisers — its main source of revenue — and where it sees opportunities to grow. (Plus, you’ll see the company describes itself as “a productivity tool for planning your dreams.” Who knew?)
Another way to find out about a company is to look online for news reports that cite analysts’ commentary and ratings on the company.
Keep in mind that initial public offerings aren’t always instant successes. Take Facebook, which saw its share price drop straight out of the gate when it went public in May 2012. It started gaining only after about a year.
» Learn more: How to research stocks
2. Know your portfolio
If you decide that Pinterest is a strong prospect for your investment dollars, it’s time to make sure the company’s shares suit your overall portfolio.
Here are some questions to consider:
What are you invested in already? Ideally, your overall investment portfolio is diversified across a variety of industries and sectors. That increases the likelihood that even if one of your investments starts losing value, others are maintaining an even keel or growing because they face different headwinds at different times.
How are you faring on other financial goals? If this is money you’ll need for retirement or another important goal, or if you're not so comfortable with the risk in hitching yourself to one company, consider investing in index mutual funds and exchange-traded funds. With those investments, you’re generally buying shares of a slew of companies, and that’s a great path to a diversified and less volatile portfolio.
What’s your time horizon? A popular rule is to avoid investing any money in the stock market that you’re going to need in the next five years. You don’t want to be caught needing to pull the money out during a market downturn — you want time on your side so you can leave the money sitting there until the market recovers and starts to grow again. Here’s more on how to invest in stocks.
» View our list: The best-performing stocks
3. Consider your budget
A lot of the questions you just answered above can also inform how much you might choose to invest in Pinterest. But above all, remember this: There's usually no need to go big on your first investment in a company.
In fact, investing routinely in shares of companies you believe in — an approach called dollar-cost averaging — is a popular way to ensure that you don't inadvertently buy too many shares of an investment when its price is near a high. Making regular purchases over time smooths out the average price you pay for your shares.
When setting a budget, remember also the tenet of not investing money you might need in the next five years. As of October 2020, Pinterest shares are trading just below $50, an all-time high for the company. But you shouldn't count on an upward trend continuing with Pinterest or any stock, particularly if you're hoping to use that money for something else in the near future.
» Need help with the mechanics? See our tutorial on how to buy stock.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.