2 reasons why Trustpilot shares could be in for a tough year ahead

I see two main headwinds for Trustpilot shares in the coming months, but there are still factors that could see me consider the stock for my portfolio.

| 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.

Businessman touching on number 2022 for preparation

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Having fallen over 40% since its IPO, Trustpilot (LSE: TRST) shares could face headwinds in the near to medium term. This article will list out two reasons as to why I think this stock may have a tough year ahead, and won’t be buying it for my portfolio any time soon.

Reason #1 – the US market is competitive

As Trustpilot continues to expand within Europe, CEO Peter Muhlmann also recognises that the bulk of earnings potential comes from the US, which it has been trying to penetrate with the abundance of merchants available on the other side of the pond. However, the company has had trouble growing its market share due to Yelp’s and Google Reviews’ heavy dominance in the country.

The reviews space is one that has low barriers to entry. As such, first movers’ advantage is paramount in order for successful penetration to occur, as seen with Trustpilot’s success in Europe, and more specifically in the UK. Trustpilot still has not got a unique enough selling proposition to convince retailers in the US to pay the premium on using their services. Therefore, until Trustpilot develops a groundbreaking feature, I am expecting its influence to be minimal and growth to be slower than expected.

Reason #2 – the economic landscape

With inflation at highs not seen in decades on both sides of the Atlantic, Trustpilot will struggle to get more merchants on board as increasing labour costs have forced the hand of many businesses to cut costs. In the UK alone, inflation is expected to peak at 7.3% in April, with interest rates expected to rise to at least 1% by the end of the year. This is accompanied by the US market pricing in as many as seven rate hikes as inflation hit 7.5% in January, a high not seen in four decades.

All this data certainly does not bode well for SMEs, which is the majority of Trustpilot’s customer base, and could possibly hinder further growth. As a result, I will be paying close attention to the firm’s earnings report that is scheduled to be released on the 22nd of March along with its guidance, which will paint a more accurate picture of the company’s future outlook.

The silver lining

With all of that being said, however, there could still be a potential upside to Trustpilot’s shares. Given that the stock is currently trading at close to its all time low at 159p, buying in at this price could end up being a bargain. In a year where the macroeconomic landscape is constantly changing with an extremely volatile equities market, a positive earnings report in late March along with positive guidance and a surprise decline in inflation could send the shares into recovery mode. I will be assessing the earnings report next month, which could possibly change my position of the stock.

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 assessed. Consider taking independent financial advice.

John Choong has no position in any of the shares mentioned at the time of writing. 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.

More on Investing Articles

UK money in a Jar on a background
Investing Articles

With a 10.1% yield, should I buy this FTSE 250 income stock?

Our writer looks at an income stock that’s kept its dividend unchanged for five years. But is it high enough…

Read more »

Investing Articles

Up 23% in a month, can this FTSE 100 stock continue to soar?

Airtel Africa's recently been the FTSE 100’s top-performing stock. With huge opportunities for growth ahead, is it set to continue?

Read more »

Investing Articles

£20,000 in savings? Here’s how an investor could use it to target an eventual £980 of passive income each month

Our writer demonstrates how an investor could aim to earn close to £1,000 each month in passive income from a…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

£10,000 invested in the S&P 500 at the start of 2025 is now worth…

Since the start of the year, the S&P 500's underperformed the FTSE 100. And Stephen Wright thinks investing in the…

Read more »

Investing Articles

Is this a turning point for the Diageo share price?

The Diageo share price is at an eight-year low. Is this FTSE 100 favourite simply too cheap to ignore? Roland…

Read more »

Investing Articles

As the FTSE 100 hits record highs, should I sell my shares and buy an index fund?

Our writer’s portfolio lagged the FTSE 100 last year, but he’s not giving up on stock-picking and highlights a recent…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

£10,000 invested in Lloyds shares 6 months ago is now worth…

Lloyds shares have performed well over 12 months but have broadly disappointed investors over the long run. Dr James Fox…

Read more »

Investing Articles

£20,000 in savings? Here’s how investors can aim for a £4,000 monthly second income

Millions of investors use the Stocks and Shares ISA as a vehicle to build wealth and generate a second income.…

Read more »