Airbnb, Inc. (ABNB), which is headquartered in San Francisco, attracted huge investor interest when it made its stock market debut last December. The company operates a platform that facilitates temporary accommodation for guests worldwide. Its shares have climbed in price over the past few weeks and peaked at $203.29 on November 5, thanks to its stellar third-quarter earnings. The stock has gained 17.9% over the past month and 18% over the past week to close yesterday’s trading session at $200.32.

The U.S. government’s elimination of its travel ban on more than 33 countries has been a catalyst for ABNB’s business revival. Furthermore, investors’ sentiment about traveling improved with the November 5 announcement that Pfizer Inc.’s (PFE) COVID-19 pill reduces the risk of being hospitalized or dying from the virus by 89%.

However, ABNB’s cost of revenue in the third quarter (ended September 30, 2021) increased 37% year-over-year to $312 million due to an increase in merchant fees driven by higher Nights and Experiences Booked. In addition, a company director, Jeffrey Jordan, sold  25,000 shares in September 2021. So, ABNB’s near-term prospects look uncertain.

Here are the factors that could influence ABNB’s performance in the coming months:

Consistent Services Innovations

In May 2021, ABNB introduced more than 100 upgrades—Airbnb 2021 Release—to refine and improve every aspect of its services, from its website and app to its community support and policies. And it is scheduled to announce the Airbnb 2021 Winter Release today, which includes more than 50 upgrades and innovations designed to  make it easier to host and support the current  travel revival.

Impressive Financials

ABNB’s revenue increased 66.7% year-over-year to $2.24 billion for the third quarter, ended September 30, 2021. The company’s Nights and Experiences Booked rose 29% year-over-year to 79.70 million. The strong recovery in Nights and Experiences Booked, combined with significantly higher average daily rates helped its gross booking value increase 48.1% year-over-year to $11.89 billion. Also, its net income came in at $833.89 million, up 280.2% year-over-year.

Stretched Valuation

In terms of forward EV/S, ABNB’s 20.47x is 1,282.1% higher than the 1.48x industry average.. Its 81.32x forward EV/EBITDA is 682.3% higher than the 10.40x industry average. And its forward P/S and P/CF of 21.40x and 130.01x, respectively, are higher than the  1.30x and 13.55x industry averages. 

POWR Ratings Reflect Uncertain Near-Term Prospects

ABNB has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. ABNB has a C grade for Growth. This is justified because analysts expect its EPS to remain negative in the current quarter (ending December 31, 2021) and for the quarter ending March 31, 2021.

The stock has a D grade for Value, which is consistent with its higher-than-industry valuation ratios. Moreover, ABNB has a D grade for Stability.

ABNB is ranked #11 of 19 stocks in the Travel – Hotels/Resorts industry. In addition to the POWR Rating grades I have just highlighted, we have also rated the stock for Momentum, Sentiment, and Quality. Get all the ABNB ratings here.

Bottom Line

Strong travel recovery and stellar third-quarter earnings helped ABNB’s shares soar over the past few weeks. However, the stock looks significantly overvalued at its  current price level. In addition, Wall Street analysts expect the stock to hit $196.79 in the near term, which indicates a potential 1.8% decline. So, we think it could be wise to wait before scooping up its shares.

How Does Airbnb (ABNB) Stack Up Against its Peers?

While ABNB has an overall POWR Rating of C, one  could check out these other stocks within the Travel – Hotels/Resorts industry holding a B (Buy) rating: Choice Hotels International, Inc. (CHH), Target Hospitality Corp. (TH), and Wyndham Hotels & Resorts, Inc. (WH).

Note that CHH is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here. 

Note that TH is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.

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