Airbnb offers strong growth potential at a great price

  • Bookings on Airbnb, an online marketplace connecting hosts with travelers, have surged, but the stock has fallen 45% year-to-date and is trading near its lowest level in 52 weeks.

  • The travel season and the lifting of COVID-related restrictions provide strong near-term tailwinds.

  • InvestingPro+ suggests a substantial rise in Airbnb stock, based on its fundamentals.

  • Airbnb’s latest move to ban parties at properties booked through it may not significantly hurt its growth.

Stock markets are in turmoil and high-flying growth stocks are hit harder than others. Airbnb Inc’s (NASDAQ:) 45% year-to-date drop can be mostly attributed to the massive sell-off in the markets. Additionally, investors fear that a looming recession will hurt travelers’ budgets and travel plans.

No one can predict with certainty if, or when, a recession will occur and how long it will last. While a recession can hurt Airbnb, other tailwinds are surely helping it and most likely will continue to do so. The company saw strong growth in bookings over the past quarter, and the summer travel season will drive that growth.

*Note: Prices used in this article are for Thursday, July 14.

Find the best stocks in bargain territory

With markets in correction territory, most stocks have corrected sharply and now look attractive. But that doesn’t make them all a buy. In fact, there are often valid reasons behind some stocks falling steeper during a correction. The key is to find mispriced stocks with strong fundamentals and solid long-term growth prospects that are experiencing headwinds or short-term concerns. These stocks will eventually go up, producing handsome returns for you.

We started our hunt for these stocks with InvestPro+‘s screener. We chose “52 Weeks Low Bargains Hunter” in strategies. It provides predefined filters. We changed some of them while keeping others at their predefined values. We changed the price of less than 120% (from the preset value of less than 150%) of 52 week low to refine the search a bit. In addition to trading at low prices, we want businesses that generously increase revenue while generating strong margins. We therefore selected a revenue CAGR (3 years) greater than 10% compared to the predefined value of 5% to focus on the most dynamic companies. We have maintained a gross profit margin above 35%. Similarly, total debt to capital is already set at a conservative level of less than 20%.

Finally, we want stocks with strong upside potential. We have therefore selected an increase based on the analyst’s objective above 25%. InvestingPro+ based fair value labels are predefined as bargain, undervalued or fair. We have also added a new Fair Value Label filter (analyst targets) using the plus sign at the bottom, selecting it as cheap and undervalued.

InvestingPro+ filter selection

Source: InvestPro+

The InvestingPro+ filter boasts of company data from all major global markets. We have selected the United States in Geography. With that, we got a list of stocks that are all growing in revenue, generating strong margins, have solid upside potential, and are in bargain territory. Sorting them by market capitalization, Airbnb caught our eye.

InvestingPro+ filter results

Source: InvestPro+

Focus on Airbnb

Basic statistics:

As of 2007 (IPO December 2020), Airbnb has grown to over 4 million hosts with over 1 billion guest arrivals worldwide. Interestingly, over 85% of Airbnb hosts are located outside the United States (The source) The company makes money by charging a fee for its online platform as well as a discount on all bookings made through it. Clearly, COVID-19 has had a big impact on Airbnb’s business. However, the company returned to growth in 2021.

ABNB financial statements

Source: InvestPro+

As InvestingPro+’s five-year financial results show, Airbnb’s revenue in 2020 was impacted by the pandemic, but its revenue in 2021 was higher than in 2019. In the last quarter, Airbnb’s revenue increased by 70% year-over-year and 80% compared to the first quarter of 2019. (The source)

Airbnb’s unique value proposition of a home away from home, the ability to search for accommodation based on your specific needs (low price, premium, an entire villa, etc.), and a distinctive experience with a host have all contributed to its rapid growth over the years. While these attributes sometimes make it an undesirable experience for travelers (property or host not as expected), Airbnb does its best to minimize such incidents. Overall, Airbnb’s rapid growth shows that there is strong demand for what the company offers.

Compare Airbnbs P/E ratio with its peers, we note that its peers also trade at high PE ratios. Corporate TTM earnings turned positive after losses during the pandemic, and they are expected to continue to recover.

ABNB Peer Compare InvestingPro+

Source: InvestPro+

Airbnb’s performance, like that of its peers, is seasonally strong in the third quarter. The company is expected to see a significant increase in earnings in the third quarter, lowering its PE. Airbnb and its peers seem to have much more reasonable prices based on their forward PEs.

ABNB Peer Compare Forward PE InvestingPro+

Source: InvestPro+

Based on analyst price targets, Airbnb stock is up 86.7%. The stock’s fair value, based on 11 InvestingPro+ models, is $110.88, implying a 21.8% upside.

ABNB Fair Value InvestingPro+

Source: InvestPro+

These models use various relative valuation and discounted cash flow techniques to arrive at a fair value.

Selection of the ABNB InvestingPro+ model

Source: InvestPro+

The stock’s financial health shows strong performance in InvestingPro+.

Financial Health ABNB InvestingPro+

Source: InvestPro+

Financial health is determined by ranking the company on over 100 factors against companies in its industry.

Solid growth at a great price

Airbnb’s unique concept has been very well received by travelers and hosts, leading to its rapid growth. In the first quarter of 2022, Airbnb surpassed 100 million bookings, its highest ever quarterly booking count.

Airbnb recently permanently banned parties from its properties. Parties were already temporarily prohibited since August 2020 and this development will therefore have no further impact on the company’s bookings.

Near its 52-week low, Airbnb stock offers attractive upside potential based on analyst price targets as well as fair value estimates from InvestingPro+. The company also scores well on financial health metrics.

Overall, concerns about the impacts of a looming recession on Airbnb may be overblown. While Airbnb stock may drop further from current levels, it looks like a fundamentally strong long-term pick, and the price looks attractive right now.

Disclaimer: The author has no position in Airbnb or any other stock mentioned.


Comments are closed.