Airbnb Is Down on Its Luck, But Not Out of the Game

It’s not easy going public during a pandemic. It’s even harder to operate a business that relies on travel during a global lock down. Airbnb (NASDAQ:ABNB) just did that! Considering these difficulties, ABNB stock is doing relatively well.

Airbnb (ABNB) app on a smartphone screen
Source: BigTunaOnline / Shutterstock.com

Critics could argue that I am smoking something saying this. After all, it is down 35% from its all-time highs. Moreover it can’t seem to get above $155 per share. To me, the bullish thesis is simple: If they can survive 2020, they can succeed in the long run. The Covid-19 crisis was as tough a test as they will get for decades.

Investors who are in ABNB stock for the long term are probably comfortable with it. The outlook for this company remains stable. The business idea is great, in fact I am using it this weekend.

The company has a wide reach, so demand will not be an issue. This also stands testament to the strength of the management team. What they accomplished earns them credits in my book.

The fundamental metrics need improvement but they are not too shabby. The income statement still shows growth over the last four years. This is in spite of the -29% setback in revenue last year. I am confident that in time they can revert back to growth.

Meanwhile, the net income line item is scary. They went into the pandemic while over-spending to grow. Then the sales stopped through no fault of their own. The negative impact of that was substantial.

ABNB Stock Is Not Expensive

I still would not call it expensive because of these special circumstances. Statistically the price-to-sales is 25, which is in line with say Tesla (NASDAQ:TSLA) to name one. “Value” is not the reason to buy it, but it’s not a deterrent either. Owning it for the long term now would be relying on the future outlook of the company.

The world is slowly going back to normal, especially in the U.S. We are ahead of the game because of how well the inoculation process went. Everyone that wants the vaccine has it, and the rest can get it whenever.

So far I’ve been upbeat about the forward progress in the company and in the economy. Here comes the caveat and it’s a doozy. The tailwinds that we’ve enjoyed on Wall Street are extreme, but they are ending! The Federal Reserve and the White House have done all they can. The Fed’s next move will be hawkish per their own words. Their changes will be to either taper or start tightening (QT). Both of these are the opposite of QE.

They started the reflation program in December of 2018. They kicked it into high gear last year. But now they have committed to unwinding these efforts. Soon, the patient will need to go on without the medication. Arguably they already started the process with the increased Reverse Repo programs. In layman’s terms, the Fed is running a pawn shop and they are having a sale. Financial institutions are buying their assets back, which sucks big bucks out of the pool.

The White House could have one last infrastructure headline. They’ve already announced it as fait accompli but that was fake news. They are still struggling to pass it through the channels. When they finally do, there won’t be another one for a long while.

Wall Street Will Miss the QE

Airbnb (ABNB) Stock Chart Showing Support and Resistance
Source: Charts by TradingView

My fear is that losing this gigantic tailwind will cause big headwinds. Stocks have never been higher with the help of massive government aid. Even just a simple reversion to the mean from this altitude could be as 20% correction. I’m not calling for one, but we are due for one. In the long term, even a 40% correction will still be within the monthly regression channel in the S&P 500. I told you it was a doozy earlier. We’ve gone too long without enough selling stints to release the pressure.

In conclusion, I believe ABNB stock will do well in the future. But for the short term, I worry about the outside factors. It has to trade within the market collective. It has support above $135, but there’s also has a lot of resistance around $150 per share. They will need either a headline or time to pierce through the heavy resistance. Falling below $130 would present a new technical challenge for the bulls.

Any positions investors take now should have leave room to manage the risk. I use options to accomplish this by selling puts in lieu of simply buying shares. This way I can be bullish and leave a 30% margin of error. I would also be long ABNB without any out-of-pocket expenses. Otherwise, I would suggest taking only partial positions leaving room to manage the risk.

On the date of publication, Nicolas Chahine 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.

Nicolas Chahine is the managing director of SellSpreads.com.


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