Online lodging marketplace Airbnb (NASDAQ:ABNB) notched up another stellar quarterly performance. Wall Street, however, is fretful of its lofty valuation, which is apparently divorced from its fundamentals.
Airbnb wrapped up its strongest first quarter ever with burgeoning earnings and sales growth. It was the first quarter in which it generated an adjusted EBITDA (earnings before interest, taxation, depreciation and amortization) profit.
Moreover, it rounded off the quarter having $9.3 billion in cash and $6.1 billion in funds for its guests.
Nevertheless, its valuation concerns are valid, considering how it trades at around ten times forward sales. Mizuho Americas analyst James Lee feels that Airbnb has plenty left in the tank to dish out superb earnings performances. Nonetheless, it trades at a premium valuation compared to its peers, so he felt a “neutral” rating was appropriate for ABNB stock.
Bank of America Analyst Justin Post had a similar observation, feeling that the sector compression is likely to create a ceiling.
Many expected a relatively weak showing for Airbnb considering the current macro-economic challenges. Judging from its glowing earnings card, though, the weak economy and rising inflations had a minimal impact. Booking nights and average daily rates have been soaring for the business, which helped post impressive financial results.
ABNB stock has had it rough over the past several months, shedding over 38% of its value in the past six months. Tech stocks have been taking a hammering at the stock market, and ABNB’s dismal performance is not surprising.
Considering the low investor confidence in the market, ABNB could dip even more, and perhaps appear more attractive. However, its rock-solid business and healthy growth runway ahead justify its current valuation.
On the date of publication, Muslim Farooque 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.