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It hasn’t been an excellent week for Trustpilot (LSE:TRST). The growth stock has experienced an 18% drop in the share price in the last week. Even with this, it’s still up 20% over the last year. I’m deliberating whether to invest in the popular customer review platform on this potential dip. Here are my thoughts!
Factors at play
Last week, the 2024 annual results came out. Trustpilot reported its first annual pre-tax profit of £5.2m. Despite this positive milestone, the market reacted negatively because some investors had higher expectations. When looking to the future, the business expects revenue growth percentage for 2025 in the high teens. Given that revenue grew by 19% for 2024, some would have been disappointed that this is seen as a slower rate of growth.
Another factor is broader market uncertainty. Concerns about the impact of President Trump’s tariffs and economic growth in the UK have made the UK stock market volatile. In these scenarios, growth stocks like Trustpilot often fall more than value stocks or defensive shares.
A dip worth considering
Despite these reasons, I think there’s good potential for the stock to recover in coming months. Even though the results didn’t quite meet the high expectations some had, it was a really solid set of earnings. The fact that the company has flipped to being profitable is a big milestone that bodes well going forward.
The CEO spoke about how it was a year “delivering record bookings, profitability and cash generation”. For the year ahead, he noted, “we will continue to deliver product innovation to embed trust across commerce, as trust becomes even more important in the age of AI”.
I think the last point is important. Trustpilot should see continued demand from users wanting to get clarity on companies using AI and which ones are trustworthy. AI can sometimes be smoke and mirrors, making it harder to spot potential scams. Trustpilot can help to clear the murkiness in this area, and I believe this could be a source of growth for the company.
High growth potential
A risk going forward is that investor expectations might still be too high. So even if the company announces a new product, partnership, or trading update, it might not be enough to excite people. Yet I think that the size of the drop in the past week likely resets some of the optimism. I’d struggle to see it fall another 18% in the coming week on this basis.
Putting everything together, I’m seriously thinking about buying the stock shortly for my portfolio. It has a unique business model that’s clearly doing very well. With growth in the UK, Europe, and America, it’s well set to scale further in the coming year and beyond.
