Airbnb (NASDAQ:ABNB) stock has been on my watchlist since the company’s initial public offering (IPO) in late 2020. From an investment perspective, I think there’s a lot to like about the company. However, the growth stock has been quite expensive in the past so I’ve never invested.
Recently however, Airbnb’s share price has come right down. In recent days, it has fallen below $100. Is now the time to buy the stock for my portfolio? Let’s take a look.
Is now the time to buy?
Airbnb’s Q3 results, posted earlier this week, showed that the company continues to grow at a healthy rate. For the period, nights and experiences booked totalled 99.7m, up 25% year on year. This pushed revenue up to $2.9bn, an increase of 29% year on year (36% at constant currency).
Importantly, the company is now generating solid profits and free cash flow. For the quarter, net income came in at $1.2bn (its most profitable quarter ever), up 46% year on year (61% at constant currency), while free cash flow was $960m.
It’s worth noting that in the Q3 results, the company noted guest demand remains strong despite macroeconomic uncertainty. However, it also said it expects bookings for Q4 to moderate slightly.
“As the impact of the pandemic recedes but macro conditions persist, we expect a continued, albeit choppy, recovery of cross-border travel to be a further tailwind to future results,” the company said in its letter to shareholders.
This last bit appears to have spooked investors and sent the share price below $100. However, looking at these results from a long-term investment perspective, I don’t see anything to worry about.
Are the shares cheap?
What about the stock’s valuation though? Has it come down? Well, at present, Wall Street analysts expect Airbnb to generate earnings per share of $2.81 next year. That puts the stock on a forward-looking price-to-earnings (P/E) ratio of about 33.
That’s not a bargain valuation. Yet, given Airbnb’s growth rate, market dominance and brand power, I don’t think it’s that high either. I’d be comfortable buying the stock at that multiple.
Share price targets
One thing that concerns me here however, is that brokers are slashing their price targets for the stock. Since posting its Q3 results, at least 10 brokerage firms have reduced their target prices.
For example, UBS has lowered its to $112 from $120 while Piper Sandler has gone from $121 to $110. Goldman Sachs, which has a ‘sell’ rating on the stock, cut its target price from $100 to $98 (that doesn’t really make any sense, given that the share price is currently lower than this).
While brokers are cutting their price targets like this, the stock could struggle to move meaningfully higher.
My move now
So what’s my plan in relation to Airbnb stock? Well, I am certainly tempted to have a nibble at current prices. I think buying the stock now while it’s down could pay off in the long run.
However, there are a few other stocks that I see as more compelling buys right now. So I’m going to buy them first and then see if I can squeeze Airbnb into my portfolio as well.
Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has recommended Airbnb, Inc. 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.
Motley Fool UK 2022