Pinterest (NYSE:PINS) has been in the news for the recent Paypal (NASDAQ:PYPL) acquisition but the attention did more harm than good.

With the start of the earnings season, investors are on the lookout for companies that are performing well and generating solid returns.

There is a correlation between the growth of earnings and stock price.

That’s why investors should worry as Pinterest is scheduled to report the third-quarter results next week. After its recent ride, all eyes are on the company.

PINS stock tanked after the acquisition did not go as planned. I have been screaming (literally!) about PINS stock inching closer to the $40s and it is currently trading at $47.

Each time I covered Pinterest in the past, I recommended investors to wait for the stock to hit rock bottom. Pinterest has potential, no doubt, but this dip was meant to happen.

Let’s dig deeper into my investment case for PINS stock.

A Closer Look at PINS Stock

PINS stock has more than doubled since 2019 but it was due to the pandemic. It has beaten the market and was called a winner in 2020 but the interest in the company is slowly dying down.

The stock is down 21% in 2021 and more than 40% since its all-time high.

The PayPal news took the stock to $62 but in no time it was back to the ground. PINS stock is currently trading at $47, an ideal entry point for investors.

Anything in the range of $40 is a good entry point but there is no harm in waiting for the third-quarter results before you take the plunge.

Pinterest will report third-quarter results soon and it has already disappointed investors in the first two quarters. Since the rate of vaccination is increasing across countries, people are confidently stepping out and this has led to a decline in the user base.

Pinterest did not issue guidance for the third quarter but the company does expect the user base to decline as we return to normal. The active users fell in Q2 and this led to the stock decline. We can only hope that it does not become a longer trend.

The company’s gross profit is growing faster than the revenue which means it has the potential to reap returns in the long term.

If the company manages to improve user monetization, it will be able to sail through this phase easily. The company reported a decline in active user base in Q2 but the revenue increased 125% year over year. If the revenue continues to grow, the company will continue to have value for users.

Pinterest is testing different features on the platform and is spending money on the global market. This will have an impact on the bottom line but it could be temporary.

The Bottom Line

The business is moving in the right direction and the company is generating revenue but the stock has shown high volatility and investors are calling it a loser.

PINS stock is a buy in the dip and I believe the third-quarter results will take it further down. Although I do not have a crystal ball, I certainly believe that it has the potential to perform over the long term.

As an investor, it is best to not compare the performance of the company with the pandemic year. It was a temporary high and PINS stock has the potential to rebound from this stage.

The company is generating profits and monetizing the platform. If you already own the stock, the dip in the $40s is a chance to add to your position.

But for now, wait and watch until the third quarter results are out and then take a position. 

On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Vandita Jadeja is a CPA and a freelance financial copywriter who loves to read and write about stocks. She believes in buying and holding for long-term gains. Her knowledge of words and numbers helps her write clear stock analysis.