What happened

Shares of Airbnb (ABNB 2.57%) were down 18.7% in May, according to data provided by S&P Global Market Intelligence. The stock was down around 25% for the month following the release of financial results for the first quarter of 2021 on May 13. But late in the month, the stock bounced back a little after management shared over 100 upgrades to its platform on May 24. 

So what

For the first quarter, Airbnb's revenue returned to growth after a drop in revenue in 2020. First quarter revenue was only up 5% year over year and only 6% from two years ago. However, the company had very strong bookings growth of 52%, pointing toward stronger revenue growth later in the year as these bookings are realized. That said, while there were some encouraging signs in the first quarter, Wall Street wasn't overly impressed. Several analysts cut their price targets for the stock, according to The Fly. This contributed to Airbnb stock being down in May.

A family loads luggage into a car top carrier in preparation to travel.

Image source: Getty Images.

A couple weeks after its first quarter report, management rolled out over 100 upgrades to the Airbnb platform. Upgrades include greater flexibility when searching for destinations and an easier process to sign up as a host. In short, the company believes the travel industry is changing to accommodate more nomadic lifestyles, and Airbnb is changing with this shift in consumer demand. This vision seemed to resonate with the market, with the stock rising slightly in the days following the announcement.

Now what

When it comes to Airbnb, there's a lot to like about the business. But when it comes to Airbnb stock, one commonly held concern is its valuation. The company isn't profitable and it currently sports a price-to-sales (P/S) ratio of 27. For perspective, the P/S ratio average for S&P 500 companies is about 3.1. In other words, on a P/S ratio basis, Airbnb stock is significantly more expensive than other large U.S. companies, and those other companies are already trading at a premium to their 10-year average around 1.5.

Therefore, if you're looking for a "good deal" on Airbnb stock, it didn't get meaningfully cheaper during May -- this still trades at a significant premium to the market. For this reason, I'd say people who buy Airbnb stock in June and beyond shouldn't buy it simply because it fell 18.7% in May. If you're buying today, it's because you believe it can grow its top line at a fast pace for a long time.

I believe it can, and I remain a buyer of Airbnb stock. But investors today need to recognize this valuation risk is still present even after May's decline.