Standing out among the Street's worst performers today is Airbnb, a commercial services company whose shares slumped -14.3% to a price of $111.82, 26.81% below its average analyst target price of $152.79.
The average analyst rating for the stock is hold. ABNB lagged the S&P 500 index by -14.0% so far today and by -22.7% over the last year, returning -5.4%.
Airbnb, Inc., together with its subsidiaries, operates a platform that enables hosts to offer stays and experiences to guests worldwide. The company is part of the financial services sector, alongside a staggering variety of banking, mortgage, insurance,and credit service companies. If there is one common denominator among all companies in the sector, it’s that they are all dedicated to maintaining and developing new systems for the storage and transfer of value and risk.
Airbnb's trailing 12 month P/E ratio is 15.2, based on its trailing EPS of $7.35. The company has a forward P/E ratio of 21.6 according to its forward EPS of $5.17 -- which is an estimate of what its earnings will look like in the next quarter. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the second quarter of 2024, the finance sector has an average P/E ratio of 19.48, and the average for the S&P 500 is 28.21.
It’s important to put the P/E ratio into context by dividing it by the company’s projected five-year growth rate. This results in the Price to Earnings Growth, or PEG ratio. Companies with comparatively high P/E ratios may still have a reasonable PEG ratio if their expected growth is strong. On the other hand, a company with low P/E ratios may not be of value to investors if it has low projected growth.
Airbnb's PEG ratio of 1.54 indicates that its P/E ratio is fair compared to its projected earnings growth. Insofar as its projected earnings growth rate turns out to be true, the company is probably fairly valued by this metric.
To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in Airbnb's free cash flow, which was $3.88 Billion as of its most recent annual report. This represents the amount of money that is available for reinvesting in the business, or for paying out to investors in the form of a dividend. With its strong cash flows, ABNB is in a position to do either -- which can encourage more investors to place their capital in the company. Over the last four years, the company's free cash flow has been growing at a rate of 87.8% and has on average been $1.78 Billion.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts). Airbnb's P/B ratio is 8.87 -- in other words, the market value of the company exceeds its book value by a factor of more than 8, so the company's assets may be overvalued compared to the average P/B ratio of the Finance sector, which stands at 1.85 as of the second quarter of 2024.
Airbnb is likely fairly valued at today's prices because it has a Very low P/E ratio, a higher than Average P/B Ratio, and generally positive cash flows with an upwards trend. The stock has strong growth indicators because of its strong operating margins with a positive growth rate, and an average PEG ratio. We hope this preliminary analysis will encourage you to do your own research into ABNB's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.
