Wall Street may be excited about a possible post-pandemic resurgence in travel. Will that result in an epic rebound in the price of Airbnb (NASDAQ:ABNB) stock? Not necessarily. Yes, improved results may be just around the corner. But, you can make the argument that the “recovery” is already factored into its valuation.
After its IPO in December, the lodging booking platform’s shares bolted out of the gate. Priced at $68 per share, the stock closed at $146 on its first day of trading. Even as travel remained depressed due the second wave of Covid-19 in the U.S., the stock continued to trend higher through the winter. Boosted by the “meme stock”/Reddit stock trend, it hit a high of nearly $220 per share in February. But, since then, it’s pulled back substantially. Trading today for around $135 per share, it’s down nearly 39% off its highs.
Even with this big decline, shares still price in an epic travel “reopening” as a certainty. At today’s prices, Airbnb trades at a high multiple to even 2022 projections. With such high expectations already baked-in, any ounce of disappointment could be enough to send it down to lower price levels. Not only that, the recent end to the insider lock-up may put downward pressure on it as well.
So, what’s the best move here? Other travel plays may have room to run, if recovery hopes pan out. With this in mind, there’s little reason to dive into this one at today’s prices.
ABNB Stock and the Post-Pandemic ‘Reopening’
As seen from its recent earnings report, things are starting to come back for Airbnb, thanks to the vaccine rollout. Revenue for the quarter beat estimates, and bookings have surged in a big way.
And, these results were from well before the Centers for Disease Control (CDC) made big changes to its safety guidance. With those vaccinated feeling more confident about getting back to normal, Airbnb could see its results improve further, as we enter the second half of 2021.
Sell-side estimates call for revenue to come in at around $5.36 billion this year, a substantial jump from 2020’s sales levels ($3.38 billion). And, in 2022, sales could see another large boost, with sell-side projections ranging from $6.11 billion and $8.25 billion.
The problem? ABNB stock already trades at a price that fully reflects this anticipated surge in its top line results. And then some. More richly priced than its peers, even following its around 39% stock price decline, it remains “priced for perfection.” This doesn’t automatically mean shares are set to pull back from here. But, it could show the stock is at best going to tread water. At worst? Sell off due to a correction in still-overheated travel booking plays.
Valuation Continues to be a Top Concern
Some Wall Street analysts, like RBC’s Brad Erickson, may see Airbnb as the standout travel recovery play. But, others on the sell-side have a more “on the fence” view of the stock. The key reason? Valuation concerns. According to Barron’s, 10 analysts have cut their price targets, citing the stock’s rich valuation relative to peers like Booking Holdings (NASDAQ:BKNG) and Expedia Group (NASDAQ:EXPE).
And, the premium applied to ABNB stock is on top of the overall frothiness surrounding travel booking stocks. Not only have BKNG and EXPE recovered from the 2020 stock price losses. Both today trade sharply above their pre-pandemic price levels. If travel numbers end up falling short of expectations calling for “pent up demand,” we could see names across the board correct.
The result? Instead of moving back towards its high water mark, Airbnb shares could pull back, as enthusiasm for travel plays cools, and valuation concerns continue to mount. Worse yet, this isn’t the only factor that could weigh down on it.
With its post-IPO lockup now over, insiders are more free to sell shares. Sure, even as its stock appears overvalued, insiders may not be rushing to cash out. But, it’s still another factor not working in favor of investors interested in buying ABNB stock today.
Bottom Line: Other Travel Recovery Plays Offer More Room for Gains
It’s understandable that, with recent headlines, investors are looking to bet big on a travel economy recovery. The issue? When it comes to names like travel booking stocks, much of the rebound is already priced-in. That’s especially the case for Airbnb, which today trades at a substantial premium to its already richly-priced peers.
Add in the end of the insider lockup, and it may be tough for this recovery play to gain from here. With other kinds of travel stocks (like airlines) offering greater runway (if we see an off-the-charts resurgence in travel later this year), it may be best to stick to them, and steer clear of ABNB stock.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
