The market is going through a bit of a rough patch, with many stocks that were leading last year having fallen off a cliff. These are times that can really try investors' patience. But it's important to remember that this is how the market works, and corrections or dips are part of the process. Over the past 20 years, there have been two real crashes, and many more dips along the way. But the Dow Jones Industrial Average, which you can see in this chart, is 264% higher than it was 20 years ago.
In other words, if you stay calm and hold on, you're likely to be rewarded in the long term. In fact, there are many stocks that have grown 10 times, or 1,000%, over the past 20 years, and some even in 10 years or less. One stock I think can grow 10 times over the next 10 years is Airbnb (ABNB 1.09%).
Why Airbnb is different
The reason Airbnb has caused such a stir is because it shakes up a traditional way to travel. Previously, trying to find a vacation rental required long searches, and there were limited reviews and no industry standards to go off of. Airbnb changed all that with its platform, standards, and reviews. It's not the only game in its industry, but it's the biggest. It has more than 400,000 hosts signed into its platform, and every new host or property offers more for customers. Because it's so simple for the company to add properties, it has enormous potential for growth, in both the short and long term.
Image source: Airbnb.
Some catalysts for growth
Airbnb's model is conducive to growth, but there are many catalysts beyond that. One of them is the shift toward more local stays generated by the pandemic. When people couldn't travel far, they traveled close. Does that mean it will change when travel completely resumes? I don't think so. Certainly, international travel will pick up when global restrictions end. But now that more people have been exposed to trip ideas they may not have thought about previously, I think these will remain viable options going forward. However, Airbnb will benefit either way. As travel resumes, more people now have Airbnb on their radar, wherever they choose to stay.
Another catalyst is the trend toward longer stays. Stays of 28 days or more exploded during the pandemic, and the work-from-home trend will continue to drive this segment. In the company's third-quarter shareholder letter, the company said, "This newfound flexibility is blurring the lines between traveling and living." Of any travel company, Airbnb is qualified to run with this. This was Airbnb's fastest-growing category in the second and third quarters in 2021, and will probably be when it reports fourth-quarter earnings as well. It accounted for 20% of nights booked in the third quarter, and it demonstrates that Airbnb has become more than a travel company -- it's a hybrid travel and living company, and management is vigorously tapping into this model as a way to move forward. It recently announced that CEO Brian Chesky will be living in Airbnb rentals for a year to gain knowledge about the experience, and I wouldn't be surprised if the company completely shifts gears to market itself in this way; I'd be more surprised if it doesn't. This represents a whole new world of opportunities on top of its already ripe ones from its current model.
More reasons to be believe in the stock
Another detail in airbnb's favor is that it became profitable last year. That's always a worry for growth companies, which invest in growth and often don't demonstrate profits until they're highly scaled. Airbnb has passed that point, posting $834 million in net income in the third quarter, and management said it expects greater margin expansion in the fourth quarter than the third.
Airbnb stock hasn't performed well over the past year, falling almost 20%. However, investors can look at it as an opportunity to buy shares on the dip. Even at this price, shares trade at a steep 103 times forward one-year earnings. But the premise looks compelling, and in 10 years' time, this stock could grow 10 times or more.
