Airbnb (ABNB -1.04%) is becoming synonymous with short-term travel and short-term rentals. The company's online platform and app encourage hosts to list places for rent, whether traditional rooms and homes or even tree houses and detached garages. 

The broad assortment of types of structures to book coupled with its wide availability across regions and countries makes it a popular online destination for folks looking to find lodging while traveling. That being said, popularity does not always translate into investment returns for shareholders.

Let's take a closer look at the company to determine if investors should buy Airbnb stock right now.

Adult and two children unpacking luggage.

Airbnb has a massive total addressable market. Image source: Getty Images.

An asset-light business with massive potential 

An essential aspect of Airbnb's business is that the company does not own or operate any rental properties. Similar to eBay, it creates the platform and manages the interactions between hosts and guests. The asset-light business model has the potential for excellent profit margins because there is no need to pay for building or maintaining expensive structures like hotels or resorts. Moreover, Airbnb can hire customer service staff in low-cost parts of the world to support guests staying at properties in high-cost areas like Los Angeles. 

The coronavirus pandemic caused Airbnb's revenue to fall by 29.7% in fiscal 2020. Before the outbreak, Airbnb increased revenue by 42.6% and 31.6% in 2018 and 2019, respectively. Overall revenue was highest in 2019, where it totaled $4.8 billion. Still, management feels that's just the tip of the iceberg. It estimates Airbnb's total addressable market at around $3.4 trillion.

To put that figure into context, Statista estimates the worldwide hotel and resort market peaked at $1.47 trillion in 2019. It seems management's estimate of its total addressable market may be on the optimistic side.

Is Airbnb stock a buy? 

Airbnb's stock is not cheap, with its price-to-sales ratio at 23. However, if you consider another metric, its price to free cash flow at 70, it's significantly below the over 240 it was trading for earlier in the year (see chart below). Besides, Airbnb's massive total addressable market combined with the potential for healthy profit margins considering its asset-light business model could make the elevated price worthwhile. 

A chart showing Airbnb price to sales ratio and price to free cash flow ratio.

Data by YCharts.

Still, risks remain for the travel company. Unlike hotels and resorts that have staff on-site to enhance safety and respond to emergencies, Airbnb has no such features. Its hands-off approach leaves guests to interact with hosts directly and only offers customer support over the phone or email. The company will have a challenge ensuring quality, safety, and consistency of experience for guests. 

Furthermore, its asset-light business model also leaves it open to new competitors entering the market. Airbnb may spend years building a customer database, attracting hosts and guests, only to have a competitor with an improved offering take market share. 

Even after acknowledging Airbnb's risk and considering that the stock is not cheap, investors can feel good about buying the stock. This is one of those cases where the potential rewards are so large that the risks are worth taking.