Downturns in the market can be stressful for investors. No one likes to see their brokerage account covered in red as a stock they purchased drops in value. However, for those with a long-term mindset, market dips can be fantastic times to load up on shares of quality companies selling for discounted prices.
For Airbnb (ABNB -2.27%), Teladoc Health (TDOC -4.78%), and Redfin (RDFN 1.81%), the market sell-off has dragged their shares down significantly from their 52-week highs, but the results they're putting up tell a different story. Buying these stocks now could make you very happy when you look through the rearview mirror at 2022.
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1. Airbnb
When Airbnb reported third-quarter earnings in November, the headline numbers were impressive. Revenue reached $2.2 billion, a 67% increase year over year, and net income soared 280% to $834 million. The company's user metrics were strong as well. Nights and experiences booked rose 29% to 80 million, while gross booking value reached $11.9 billion, up 48%.
The company is also seeing some trends that bode well for future results. Long-term stays of 28 days or more are on the rise, both in terms of type of trip and percentage of nights booked. During the quarter, these long-term stays accounted for 20% of overall nights booked, compared to 14% in the same period of 2019. This is good news for the company but also for its hosts who earned a record $12.8 billion in the quarter.
At the time of this writing, shares of Airbnb are trading for 20 times sales (P/S). This is around where the stock was priced in the summer of 2021, and not far from the P/S of 22 on its IPO day. There haven't been too many opportunities in Airbnb's history to grab shares at this valuation.
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2. Teladoc
Unfairly labeled as a "pandemic stock," Teladoc has had a rough go of it with shares down 74% over the past year. You could forgive investors for assuming this was all a result of the return to in-person doctor visits over the past several months. However, a closer look reveals the business is doing just fine. Third-quarter revenue increased 81%, and total visits jumped 37% year over year. There was also an important boost in high-margin access fee revenue, which grew to 87% of the top line, up from 78% in the prior-year period.
Teladoc wants to be a holistic health solution for its customers. To that end, 70% of Teladoc's bookings in 2021 were multi-product sales, compared to just 50% in the previous year. This means more customers are turning to Teladoc for multiple treatments. If Teladoc can become a one-stop shop for healthcare needs, its future prospects just got even brighter.
Teladoc's P/S ratio is just six as of this writing, a multiple not seen since 2017. The company is a much more established and stronger business now than it was then. Wall Street isn't pricing in much future growth, which should be a gift for investors buying in at this level.
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3. Redfin
Redfin is trying to disrupt one of the most established industries around: real estate. By building a business around agents who work on salary as opposed to commissions, Redfin is able to charge sellers a commission between 1% and 1.5% as opposed to the traditional 2.5% to 3%. While the early days of the pandemic were very challenging, Redfin has landed on its feet and put up strong results.
In the third quarter, revenue increased 128% year over year to $540 million as gross profit rose 37%. The company is not yet consistently profitable with a net loss in the latest report of $19 million. More importantly for Redfin at this stage of its growth is that it has continued to gain market share. Redfin reached a market share of 1.16% in the third quarter, up from 1.04% the prior year. This extended a multi-quarter streak of increasing share.
Redfin has also dipped a toe in the world of iBuying, where the company will purchase a house and sell it for profit. Considering the complete abandonment of this strategy by competitor Zillow, it's important for investors to know that Redfin is proceeding with caution. As CEO Glenn Kelman put it during the latest earnings call: "Redfin isn't an iBuying company at all. It's part of what we do, but it's not who we are."
With the steady growth of its core business and additional prospects in iBuying, investors can enjoy upside potential without much valuation risk. Redfin only trades for two times sales after the stock shed 66% over the past year. Redfin will require the most patience as an investor, but it's hard to argue the opportunity isn't worth the risk with shares trading this cheaply.
