Airbnb (NASDAQ:ABNB) stock is more than 20% below its all-time highs. This is not a reason to shy away from it, quite the opposite. Today, the goal is to re-evaluate an entry from these levels.
The reason for the fall was nothing specific to the company. In fact, it’s doing better than DoorDash (NYSE:DASH) who came to market with it. DASH is down twice as much.
It is also a little extra concerning that markets are near all-time highs and these two are floundering.
Airbnb is part of the leisure and hospitality sector. They suffered a huge blow from the pandemic, and their survival is testament to good management skills. It wasn’t pretty, but they are hanging in there.
The inoculation process is going well in the U.S. and other countries are also ramping up efforts. Soon most people will feel more comfortable about moving about.
Many families completely canceled all trips. In mine, we still vacationed in Cancun last July but we were the exception, not the rule. Judging the stock negatively now is a mistake. ABNB stock is facing unusual and unique circumstances not likely to repeat. Long term, these will abate.
ABNB Stock Is Where It Should Be
Two months ago, when the stock was at its highest, I wrote about going long Airbnb. But since it was trading at its all-time high, I suggested to buy it on a dip. In fact, I specifically pointed out $175 per share as an interesting spot for that. Here it is 70 days later toying with these levels. At these levels, it makes more sense than a runaway stock during a pandemic. Those who are surprised it fell need to learn how to avoid the FOMO in the future.
I don’t usually aim to be perfect picking my entries. Therefore, I accept the possibility of lower prices in the near future. However, I am confident that there are support levels at $160 and through $150 per share. Starting a bullish position this close to those supports makes sense.
I have even more history with this particular ABNB stock level. Late in December I wrote about its upside potential. At the time the stock was coming up into the same zone it is at now. This makes it the definition of a pivot point. Because back then it was the trigger that delivered the highs. Now it is likely to act as the base for a rebound and beyond.
There Is Extrinsic Risk
I would like to throw a small flag on the play, and it comes from my fear of the overall market. We are going into a seasonably vulnerable stretch. The “sell in May and go away” often becomes a self-fulfilling prophecy. I expect some drama in the next few weeks. Moreover, next week we will hear from the giga-caps reporting earnings. This group can move the whole market with it. The reaction to Netflix (NASDAQ:NFLX) is not comforting to what the rest can face.
The overnight reaction to the earnings is arbitrary. I am confident that they will deliver strong earnings. What we can’t forecast is how the investors will react. NFLX improved earnings by 139% over last year and grew sales by 24%. The markets were expecting something they didn’t get so they panicked. This extrinsic risk weakens the conviction in ABNB stock temporarily.
Value Is Not an Ally to the Airbnb Bulls
Fundamentally, the company is growing revenue. But the metrics of late are a mess and the losses are piling up. The confusion from the pandemic makes it impossible to really gauge its value. This falling knife has no arguments from value to help support it. The bulls cannot be too brave with catching it. Therefore, my primary bullish assumption today is that of a technical nature.
All year, the buyers have defended several support levels that lie below current price. I can assume they continue to do that for as long as the markets do not crash. If we indeed have a market correction, I expect that the bears will try to push the ABNB stock lower.
It came out of the IPO gate weak and fell 25% in four days. The next two weeks were very violent but it kept setting higher-lows. In the process, they established the consolidation zone below $160 per share. I suspect that on the way down, it will serve as a band of support.
Catching falling knives is dangerous even in the the strongest companies. Doing so in one this new and speculative raises the level of risk folds over. This is to say that investors should be realistic with their level of certainty. I find it good practice to take small bites rather than a full meal at once. Keeping the size of the potential mistakes small makes for happier trading in the long run.
Patience is indeed a skill necessary skill for success. The fear of missing out and the fear of panic cause us to commit mistakes. If we are patient on the upper and lower extremes, we can avoid as many of these situations as possible.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.
