Trustpilot’s share price has halved this year. Is this a buying opportunity?

Trustpilot’s share price has tanked in 2022 as tech shares have fallen. Is now the time to buy the growth stock? Edward Sheldon takes a look.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Stack of one pound coins falling over

Image source: Getty Images

Shares in Trustpilot (LSE: TRST), which went public last year, are having a terrible run in 2022. Year to date, the share price is down about 50%.

The last time I covered Trustpilot, in October, I had issues with the stock’s high valuation. However, since then, this has come right down. Is this a buying opportunity for me? Let’s take a look.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Is now the time to buy the shares?

A recent trading update from Trustpilot, posted on 12 January, showed that the growth story here is still intact. For the year ended 31 December, total revenue came in at $131m, up 24% year-on-year on a constant-currency basis. According to CEO Peter Holten Muhlmann, this was ahead of expectations. Meanwhile, annual recurring revenue (ARR) amounted to $144m, up 26% at constant currency.

Looking ahead, City analysts expect Trustpilot to generate revenue of $165m for 2022. If the group can achieve this, it would represent top-line growth of around 26%.

These numbers suggest to me that Trustpilot is still enjoying a healthy level of growth. However, I’ll point out there’s no guarantee the company will continue growing at this rate. If rivals were to steal market share (‘barriers to entry’ here seem quite low, to my mind), growth could slow.

Is it making any money?

Of course, just because Trustpilot is growing at a healthy rate doesn’t mean the company is a good investment. One thing we also need to look at is profitability. Is Trustpilot making any money? Because if it’s not, it’s going to be a higher-risk investment. One reason the share price has tanked recently is that investor sentiment towards unprofitable software companies has really deteriorated.

Looking at analysts’ forecasts, Trustpilot is not expected to generate a profit in the near term. For 2021, they expect a net loss of $14.5m. And for 2022, a net loss of $7.3m is pencilled in.

This lack of profitability is a bit of an issue for me. That’s because the stocks of unprofitable companies tend to be both highly volatile and highly unpredictable. I prefer to invest in companies that are already profitable.

Is the Trustpilot share price too low?

We also need to look at the stock’s valuation. Is there value on offer here after the recent share price fall Well, Trustpilot doesn’t have a price-to-earnings ratio because it’s unprofitable. But it does have a price-to-sales ratio and that’s about 5.5 on a forward-looking basis.

That valuation is not that high, to my mind, given that Trustpilot has a strong level of recurring revenues. At that valuation, I do see a little bit of value on offer.

My view now

Putting this all together, I can see some appeal in Trustpilot after the recent share price fall. The company is still growing and the valuation doesn’t seem that high.

However, given the risks, Trustpilot isn’t a buy for me right now. Ultimately, it doesn’t make my ‘best stocks to buy’ list.

Some of these stocks do though…

Inflation Is Coming: 3 Shares To Try And Hedge Against Rising Prices

Make no mistake… inflation is coming.

Some people are running scared, but there’s one thing we believe we should avoid doing at all costs when inflation hits… and that’s doing nothing.

Money that just sits in the bank can often lose value each and every year. But to savvy savers and investors, where to consider putting their money is the million-dollar question.

That’s why we’ve put together a brand-new special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation…

…because no matter what the economy is doing, a savvy investor will want their money working for them, inflation or not!

Best of all, we’re giving this report away completely FREE today!

Simply click here, enter your email address, and we’ll send it to you right away.

Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

More on Investing Articles

Woman pulling baffled face
Investing Articles

Can I trust Lloyds’ 6.1% dividend yield?

The Lloyds' share price has sunk in 2022, causing the bank's dividend yield to leap. But can I really trust…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

3 top stocks to buy before the market rebounds

Edward Sheldon highlights three beaten-up stocks he'd buy before global stock markets stage a recovery from their 2022 declines.

Read more »

Happy young female stock-picker in a cafe
Investing Articles

I’d drip-feed £300 a month into my Stocks and Shares ISA to aim for million

Investing regularly via a Stocks and Shares ISA is a simple way of possibly reaching a million-pound portfolio. Zaven Boyrazian…

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing Articles

Is this penny stock on track for an explosive recovery in 2022?

Investing in penny stocks is a risky endeavour. But it can also deliver gigantic returns for a prudent investor like…

Read more »

Close-up of British bank notes
Investing Articles

Secrets of the world’s most successful passive income investors

Here's how it's possible to secure a healthy long-term passive income stream, based on a few simple principles gathered from…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

Down 50%, will the Royal Mail share price bounce back?

The Royal Mail share price has halved in value in the last year. After such a decline, is it now…

Read more »

Partnership of business concept.
Investing Articles

Director dealings: Marks and Spencer, Cranswick, Homeserve

Director dealings can indicate whether a company's doing well. So, here are this week's biggest insider transactions at three FTSE…

Read more »

Cheerful young businesspeople with laptop working in office
Investing Articles

Best British growth shares for July

We asked our freelance writers to share the top growth shares they’d buy in July, which included data firms and…

Read more »