Bookings at Airbnb, an online marketplace connecting hosts to travelers, have risen steeply, but the stock is down 45% YTD and is trading near its 52-week low.
Travel season and lifting of COVID-related restrictions offer strong tailwinds in the near-term.
InvestingPro+ suggests a substantial upside for Airbnb stock, based on its fundamentals.
Airbnb’s latest move to ban parties at properties booked through it may not hurt its growth materially.
Current price/52-week range: $91.05 ($86.71 - $212.58)
Market cap: $57.95 billion
P/E Ratio: 72.3x
Stock markets are in a turmoil and high-flying growth stocks are getting hit harder than others. Airbnb Inc (NASDAQ:ABNB)’s 45% YTD fall can primarily be attributed to the broader sell-off in the markets. Additionally, investors are concerned that an impending recession may hurt travelers’ budget and their travelling plans.
No one can for sure predict if, or when, a recession will come and how long will it last. While a recession may hurt Airbnb, some other tailwinds are surely helping it, and will most likely continue to do so. The company posted strong growth in bookings in the latest quarter, and the summer travelling season will boost this growth.
*Note: Pricing used in this article is as of Thursday, July 14th close.
Finding top stocks in bargain territory
With markets in a correction territory, most stocks have corrected steeply and look attractive now. But that does not make all of them a buy. In fact, often, there are valid reasons behind the steeper fall of some stocks during a correction. The key is finding mispriced stocks with strong fundamentals and solid long-term growth prospects that are experiencing near-term headwinds or concerns. These stocks will eventually rise back, producing handsome returns for you.
We started our hunt for such stocks with InvestingPro+’s screener. We picked “52 Weeks Low Bargains Hunter” in the strategies. It provides some pre-set filters. We changed some of those while kept others at their pre-set values. We changed price less than 120% (from the pre-set value of less than 150%) of 52 Week Low to narrow down the search a bit. In addition to trading at a low price, we want companies that are growing revenue handsomely while generating strong margins. So, we selected revenue CAGR (3y) of greater than 10% up from the pre-set value of 5% to focus on the top growing companies. We retained gross profit margin at greater than 35%. Likewise, the total debt to capital is already set at a conservative level of less than 20%.
Finally, we want stocks with solid upside potential. So, we selected upside based on analyst target as greater than 25%. Fair value labels based on InvestingPro+ are pre-set as one of bargain, undervalued, or fair. We also added a new filter Fair value label (Analyst Targets) using the plus sign at the bottom, selecting it as bargain and undervalued.
Source: InvestingPro+
InvestingPro+ screener boasts of data of companies from all major global markets. We selected United States in geography. With that, we got a list of stocks that are all growing revenue, generating strong margins, have solid upside potential, and are in a bargain territory. On sorting these by market cap, Airbnb caught our attention.
Source: InvestingPro+
A closer look at Airbnb
Basic stats:
Starting in 2007 (IPO in Dec. 2020), Airbnb has grown to over 4 million hosts with over a billion guest arrivals across the world. Interestingly, more than 85% of Airbnb’s hosts are located outside the U.S. (source) The company makes money by charging a fee for their online platform as well as a cut on all bookings done through it. Obviously, COVID-19 impacted Airbnb’s business severely. However, the company returned to growth in 2021.
Source: InvestingPro+
As the five-year financials on InvestingPro+ show, Airbnb’s revenue in 2020 was hurt due to the pandemic, but its 2021 revenue was higher than in 2019. In the latest quarter, Airbnb’s revenue grew 70% YoY and 80% over Q1 2019. (source)
Airbnb’s unique value proposition of a home away from home, an ability to search accommodation based on your specific needs (low-price, premium, an entire villa, and so on), and a distinctive experience with a host has all contributed to its rapid growth over the years. Although these attributes sometimes make it an undesirable experience for guests (property or host not as expected), Airbnb is trying its best to minimize such incidents. In all, Airbnb’s rapid growth shows that there is a robust demand for what the company offers.
Comparing Airbnb’s PE ratio with its peers, we note that its peers are also trading at high PE ratios. The companies’ TTM earnings have turned positive after losses during the pandemic, and they should continue to recover.
Source: InvestingPro+
Airbnb’s performance, like its peers, is seasonally strong in the third quarter. The company should see a meaningful increase in its earnings in Q3, bringing its PE down. Airbnb and its peers look far more reasonably priced based on their forward PEs.
Source: InvestingPro+
Based on analysts’ price targets, Airbnb stock has an upside of 86.7%. The stock’s fair value, based on 11 InvestingPro+ models, is $110.88, which implies an upside of 21.8%.
Source: InvestingPro+
These models use a variety of relative valuation and discounted cash flow valuation techniques to arrive at a fair value.
Source: InvestingPro+
The stock’s financial health shows good performance in InvestingPro+.
Source: InvestingPro+
The financial health is determined by ranking the company on over 100 factors against companies in its sector.
Solid growth at a bargain price
Airbnb’s unique concept has been very well-received by both guests and hosts, driving its rapid growth. In the first quarter of 2022, Airbnb exceeded 100 million bookings, its largest quarterly bookings number ever.
Airbnb recently banned parties at its properties permanently. The parties were already temporarily banned since August 2020 and so this development will have no added impact on the company’s bookings.
Close to its 52-week low, Airbnb stock offers an attractive upside potential based on analysts’ price targets as well as InvestingPro+’s fair value estimates. The company scores well on financial health parameters as well.
In all, concerns relating to the impacts of an impending recession on Airbnb may be overblown. Although the Airbnb stock may dip further from the current levels, it looks like a fundamentally strong pick for the long-term, and the price looks attractive right now.
Disclaimer: The author has no positions in Airbnb or any other stock mentioned.
