Airbnb (NASDAQ:ABNB), a leading platform that enables hosts to offer stays and experiences to guests worldwide, has made a 1-month rally of 6.75%. Airbnb has also entered its best period to report strong earnings: the summer. ABNB stock is down 41% in 2022, which brings us to the question of whether the stock is a buy.
I believe ABNB stock is not a buy as it remains very pricey. Here’s a closer look at why that’s the case.
Airbnb Must Deliver Strong Summertime Results
Seasonality is an important factor that drives the stock market higher or lower and naturally. It is also an important factor for stocks to monitor as well. The summer period marks the busiest period for Airbnb as people need to travel, take their summer vacations and gain valuable experiences, either traveling domestically or abroad.
The key quarter for ABNB stock investors to pay attention to is the one ending September, as it will include the entire summer period. Airbnb is expected to release its next quarter’s earnings mid-August 2022, but I consider the quarter ending in September the most important one. According to MarketWatch, in 2021, the quarter that ended on Sept. 30, 2021 was the one with net income growth of 1,322.41% to $833.89 million. It’s also the reason Airbnb is profitable on a TTM basis despite having delivered a net loss for 2021.
Can the trend of soaring sales and net income growth repeat this year? The chances are very high; however, I am not so sure a rally will follow for ABNB stock. The reason is the tighter monetary policy by the Federal Reserve. I expect a relatively volatile summer for the stock market. As such, Airbnb will have to deliver strong results during the summer to make a rebound in its shares that will last.
Why Airbnb Will Likely Have a Strong Summer Season
According to monthly travel data report by the U.S. Travel Association, “[f]or the first time since the start of the pandemic, travel spending ($100 billion) was 3% ABOVE 2019 levels in April 2022.” The report dives a bit deeper pointing out that “[m]ore than one-quarter (28%) of travelers plan to spend significantly more this summer over their 2019 travel budgets for marquee trips, due to higher prices as well as accumulated savings.”
While this data is promising it’s important to consider a potential negative factor that may create some surprises for travel stocks: Rising gas prices.
Another report by AirDNA is positive for the business prospects of Airbnb during the summer of 2022. In 20 major markets, 18 show an increase in short-term rental demand. This demand is expected to increase the average daily rate of spending by visitors. Higher prices should translate to higher revenue and profits for Airbnb.
ABNB Stock Remains Too Pricey
Compared to the Consumer Discretionary sector, ABNB stock trades at a significant premium in terms of all major financial ratios. There is no financial ratio that makes the stock relatively cheap. Furthermore, the premiums are not marginal, they are extreme in most cases. For instance, using Seeking Alpha data, the price-to-sales (FWD) ratio of 9.58x for ABNB stock has a difference of 1,031.55% from the sector median value of 0.85.
The theory and data mentioned above suggest that Airbnb is expected to generate tons of revenue, and probably profits during the summer of 2022. But the stock remains very pricey, and this is not an ideal buy scenario now, as valuation concerns will remain throughout 2022.
On the date of publication, Stavros Georgiadis, CFA 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.