My top stock to buy right now is Airbnb (ABNB -0.22%), and second place is not even close. The worldwide travel facilitator is thriving as people unleash pent-up demand after being cooped up at home for more than a year. To make the case more compelling, Airbnb's stock is arguably cheaper than it's ever been after it has been caught up in the broader stock market sell-off.
Free cash flow is surging at Airbnb
Airbnb struggled at the pandemic's onset when folks delayed taking vacations. Revenue fell by 30% in 2020. Management took that time to streamline the business and focus more on its core. Those adjustments have helped the company generate more cash flow as revenue surges above pre-pandemic levels.
In its most recent quarter, which ended March 31, revenue was 80% higher than the comparable quarter before the outbreak. Airbnb has achieved that feat even as worldwide spending on hotels and resorts has not yet recovered to pre-pandemic levels. That means Airbnb is gaining prominence with consumers looking to take long-delayed vacations.
ABNB Free Cash Flow (Quarterly) data by YCharts
Free cash flow in the quarter reached $1.2 billion. That was nearly double the $611 million it earned in the same quarter of the prior year. The company's asset-light business model is helpful to cash flow generation. Airbnb does not own any of the properties listed on its platform. Instead, it takes a percentage of all the transactions booked on Airbnb. That way, it does not need to invest significantly in building hotels and resorts.
Airbnb also attracts a broad range of property types. For instance, folks can book an extra bedroom in an apartment or an entire home. The wide range of listings increases travelers' chances of finding what they are seeking.
Airbnb's stock is cheaper than it's ever been
ABNB Price to Free Cash Flow data by YCharts
Airbnb is trading at a price-to-free-cash-flow ratio of 21. According to that metric, the stock has never been cheaper. The discount valuation is at odds with Airbnb's excellent prospects over the near and long term. It's in an ideal position to capitalize on consumers unleashing pent-up demand for travel. The asset-light business model means it can capture a full measure of the growth in demand. That contrasts with hotels, which can only generate revenue on available rooms. Once they sell out, that's it.
Airbnb does not have that problem. Management has noted that increasing demand encourages more listings on the platform. Folks start talking about the money they are making renting their extra room or their vacation home, and it's not long before that gets their friends and family converting that spare bedroom into an Airbnb listing.
A cheap valuation, surging cash flow, and an unleashing of pent-up demand for travel all help make Airbnb my top stock to buy right now.
