1 Growth Stock Down 27% to Buy Right Now

Airbnb (NASDAQ: ABNB) ended 2023 with strong momentum on its side. The popular travel booking platform reported revenue growth of 18% last year, bringing the total to $9.9 billion. It looks like consumer spending remains robust, despite macroeconomic uncertainty.

After spending a sizable chunk of the past couple years well below its IPO price, shares of Airbnb are now up 10% since they hit the public markets in Dec. 20 (as of March 5). However, they're still 27% below their all-time high, which was set in Feb. 2021.

Don't let that deter you from considering this stock as a portfolio addition. In my view, Airbnb is a top growth stock to buy right now.

Dominating the travel industry

At the end of last year, Airbnb gave investors a more accurate glimpse into just how massive its sprawling operation is. The business has a whopping 5 million hosts that have 7.7 million active listings on the site. No other travel or tourism company holds a candle to this scale. Services are offered in more than 220 countries and regions across the globe.

In the last 12 months, 448 million nights and experiences were booked on the platform, with gross booking value of $73 billion. Airbnb's founders deserve a ton of credit for being able to completely upend an entire industry in less than 20 years.

Running a gargantuan two-sided marketplace means that Airbnb benefits from a powerful network effect. This is what makes up its economic moat. And it means that Airbnb's service gets better with more users, as there are more options available to travelers and more potential customers to generate revenue from for hosts. It's a flywheel effect.

Airbnb has proven that its business model can be financially lucrative. Free cash flow totaled $3.8 billion in 2023, after coming it at $3.4 billion the prior year. Management uses this to repurchase outstanding shares.

A valid argument can also be made that Airbnb's brand, estimated to be valued at $16 billion, also contributes to its moat. Just like gig-economy peer Uber, Airbnb has become a verb, indicative of its consumer mindshare. It almost becomes unnecessary to aggressively advertise the service.

"Approximately 90% of our traffic remains direct or unpaid because the majority of Airbnb stays are unique to us," Chief Business Officer Dave Stephenson mentioned on the Q4 2023 earnings call.

All of the factors laid out above give me confidence that Airbnb will be difficult to disrupt anytime soon. I've written before that I view regulatory changes as perhaps the company's biggest risk to pay attention to. But this only helps to demonstrate just how dominant the business has become.

Modest valuation vs. high-octane growth

Because shares have gotten so crushed, they trade at what I believe to be a reasonable valuation. As of this writing, the stock sells for a forward price-to-earnings (P/E) ratio of 35.7. That represents a modest 17% premium to the 30.4 forward P/E multiple of the Nasdaq 100 Index.

Given all of Airbnb's favorable attributes, I think investors should take advantage of this reasonable valuation and scoop up shares without hesitation. The stock could continue rewarding shareholders going forward.

According to Wall Street's consensus analyst estimates, Airbnb is projected to increase revenue at a compound annual rate of 12% over the next three years. That top-line forecast is, unsurprisingly, a slower clip than in the past. Airbnb already has such a huge presence globally, but double-digit growth should be the norm at least for the foreseeable future.

This is a stock you definitely want in your portfolio.

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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Airbnb and Uber Technologies. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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