Earlier this month, Airbnb (NASDAQ:ABNB) went public at $68 per share. Today, Airbnb stock changes hands at around $167.60 per share. Thatâ€™s a more than 146% gain, all in a few weekâ€™s time! But, while the current investor enthusiasm is understandable, it may not be sustainable. Investors may be rushing in to buy it as 2020 ends. But, investors could be singing an entirely different tune in 2021.
Why? Long-term, prospects remain strong for this disruptor of the hotel industry. But, until we get over the novel coronavirus pandemic, thereâ€™s no way this stock deserves the current valuation premium it currently commands.
Instead of paying a premium, investors should be expecting a discount, as the overall travel market remains depressed. Sure, vaccine news may point to a full recovery in the coming year. But, todayâ€™s share price shouldnâ€™t be making this possibility a certainty.
So, whatâ€™s the move with this stock, as it remain more than â€œpriced for perfection?â€ Hold off buying for now, as you may be able to enter a position at a more favorable entry point sometime next year.
Airbnb Stock: Investor Euphoria vs. Pandemic Headwinds
Given its well-known brand, and compelling growth story, itâ€™s no shock investors have been chomping at the bit to buy this stock. But, with shares getting ahead of themselves, it hard not to be concerned about valuation.
Shortly after the Dec 10 IPO, Gordon Haskettâ€™s Robert Mollins changed his prior â€œbuyâ€ rating to â€œunderperform,â€ citing the â€œstretched valuationâ€ of Airbnb stock. Trading at a price-to-sales (P/S) ratio many times that of rivals like Booking Holdings (NASDAQ:BKNG) and Expedia (NASDAQ:EXPE), Mollins sees this premium as overdone.
Sure, with its high projected growth, you can say todayâ€™s rich valuation should not be a concern. But, while Wall Street consensus calls for sales to climb from an estimated $3.2 billion in 2020, to $11 billion in 2025, whoâ€™s to say actual results wonâ€™t fall short? Uncertainty remains whether 2021 will be the year the travel economy recovers. Even as the vaccine roll-out begins in the U.S and other major economies.
For now, Covid-19 continues to be a headwind for Airbnb. While sales have rebounded since last springâ€™s lockdowns, revenue is still set to fall around 32.7% year-over-year. It may not be until 2022 that the companyâ€™s top line gets over 2019â€™s high water mark of $4.8 billion.
Investors may see this as a big tech name. But, given its dependence on a still hard-hit sector, it doesnâ€™t make sense to value it like itâ€™s â€œcrushing itâ€ right now. And, even as the coming year may mean a rapid recovery for the travel economy, shares could still sell-off from here.
Why Shares Could Head Lower, Even as We Get Over Covid-19
Investors today can justify paying a premium for Airbnb stock, due to its high levels of projected growth. But, while the travel economy is set to bounce back in 2021, there are three factors that could impact its performance over the next twelve months.
Firstly, near-term results could scare off some investors. CNBCâ€™s Jim Cramer discussed this as a possibility shortly before Airbnb stock started trading. As travel demand remains depressed, Cramer predicts low travel demand will negatively impact Q4 2020 (ending Dec 31) results, as well as results for the Q1 2021 (ending Mar 30).
Secondly, while vaccine progress bodes well for the travel economy in 2021, itâ€™s not set in stone. Governments around the world are working to get vaccines distributed. But, it may not be enough to fuel a rebound by next summer. If it takes longer for the travel economy, and in turn, Airbnb, to bounce back, expect it to negatively impact shares.
Thirdly, thereâ€™s a key factor that could impact Airbnb shares, even as the pandemic enters the rearview mirror. Our own Matt McCall highlighted it in his Dec 16 article on the stock. What is it? The possible continued pivot away from urban centers.
Back during the â€œold normal,â€ Airbnb benefited from scarcity for rental properties in high-cost city centers like New York and San Francisco. But, with the pandemic driving an exodus out of both cities, rents have cratered. Itâ€™s not just traditional landlords who stand to lose from this trend. Oversupply and insufficient demand could impact this once highly-profitable segment of Airbnbâ€™s overall business.
A Great Long-Term Buy (at the Right Price)
Granted, the aforementioned concerns do not make Airbnb a name to bet against. But, these issues do highlight the risks of diving in while this stock remains â€œtoo hot to touch.â€ Priced for perfection (and then some), it wonâ€™t take much to fuel a massive move lower.
So, whatâ€™s the call? Wait things out with Airbnb stock. At the right price, it may be a screaming buy. But, at todayâ€™s prices? Not so much.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.