While a company's stock performance around the time of its quarterly earnings is eye-catching -- and usually gets the headlines -- the underlying fundamentals of the business should be far more critical to investors.

With this in mind, three Motley Fool contributors will look at Amazon (AMZN 2.32%)Brunswick (BC -0.95%), and Airbnb (ABNB 0.39%) after their earnings, explaining why each is worthy of investment, despite recent rises.

Amazon's earnings are a glimpse of the future

Bradley Guichard (Amazon): Judging by Amazon stock's 14% gain since it announced its second-quarter earnings, you may think it had a stellar quarter.

But that's not exactly what went down. Growth in Amazon Web Services (AWS) slowed; total sales grew 7%, but net product sales fell year over year; Amazon's already thin operating margin contracted.

So what gives? Two things:

  1. The 7% growth was not the dire quarter many feared.
  2. The company's prospects are dazzling.

Amazon was a pioneer in the online retail space, and many people still associate the business with product sales; however, the future for Amazon is selling services. Retail sales will likely always be part of the business, but cloud services and advertising sales are the future. 

As mentioned, net product sales declined 2.5% year over year, but net service sales rose 17%. This is terrific news for investors because margins for Amazon's services are much higher than margins for product sales. Amazon Web Services has an operating margin of 32% so far in 2022. On the product side, discount retail is simply not a high-margin business. Just ask Walmart, which recently cut its operating margin guidance to less than 4%. Amazon's focus on services should massively increase future profitability.

AWS's year-over-year growth slowed from 37% in Q1 to 33% in Q2, but is still extremely robust. AWS will generate over $82 billion in sales in 2022 and more than $26 billion in operating income if current trends continue.

Advertising sales produced $12.7 billion in 2019 and have exploded since. In 2022, advertising sales are on pace to generate over $37 billion, nearly tripling in just three years. In fact, advertising sales will produce more revenue than Prime memberships soon if the current pace continues. 

Valuing just these two revenue streams at 10 times expected 2022 sales, similar to the valuation of cloud services competitor Microsoft, would garner a market cap near $1.2 trillion. The company seems deeply undervalued, with Amazon's current total market cap of just $1.4 trillion. If management also returns the retail segments to profitability, the stock should outpace the market and deliver substantial profits to investors.

A stock to keep your portfolio above water

Jeff Santoro (Brunswick): When it comes to investment ideas, boating may not be the first thing that comes to mind. However, looking at the recent results of Brunswick, savvy investors will see that boating can be a profitable business. By selling all things marine-related, Brunswick has beaten the market by more than 20% over the past three years.

For the second quarter of 2022, Brunswick reported revenue growth of 18%, good for a record $1.8 billion. Additionally, operating earnings increased 12% and earnings per share grew 14% to $2.61, also a quarterly record. These results were driven by strong growth sales in all three of Brunswick's segments.

Segment

Q2 2021

Q2 2022

Change

Propulsion

$650 million

$734 million

13%

Parts and Accessories

$549 million

$652 million

19%

Boats

$449 million

$568 million

27%

Data source: Brunswick.

Of particular interest is the growth in the boating segment. In its second-quarter earnings presentation at the end of July, management said that ever since the pandemic began, boat inventories have been at historic lows. The fact that Brunswick has been able to sell 27% more boats shows how demand is outpacing supply. Should the capacity to produce boats improve, there's a chance Brunswick will see even higher sales.

Also part of the boat segment is Brunswick's Freedom Boat Club (FBC), which provides members with a fleet of boats to use at their local club, as well as benefits at other FBC locations around the world. FBC is currently a small part of revenue, but it's growing. In Q2, FBC comprised 6% of the boat segment's overall revenue, up from 3% in Q2 of 2021. 

FBC has many benefits to the overall business. In addition to the revenue it brings in, the company is working to increase the percentage of the FBC fleet that is Brunswick boats. This in turn presents opportunities for the propulsion and parts and accessories segments. Lastly, the opportunity to give boating a try via FBC could end up converting some members into future boat owners.

Brunswick is profitable and free-cash-flow positive. Recently, the company has been using its excess capital to reward shareholders. In Q2 it repurchased $140 million of its own shares, and combined with its dividend, Brunswick expects to return more than $500 million to shareholders in 2022.

Considering its growth and shareholder-friendly capital allocation, Brunswick is a no-brainer buy, and the recent earnings only confirmed the strength of the business.

A dynamic duo: High sales growth and strong free cash flow

Josh Kohn-Lindquist (Airbnb): Driven by its mission "to create a world where anyone can belong anywhere," Airbnb's operations beautifully align with many of the ideologies important to the millennial and Gen Z generations. The company's platform fully embraces the growing work-from-anywhere lifestyle for its guests and empowers its hosts to realize the new profit potential of selling extra rooms in their homes or empty vacation houses.

Ranking as the 19th and 35th top brand among millennials and Gen Z, respectively, Airbnb comes in as the 78th strongest brand globally, according to Comparably. Thanks to this widespread recognition, Airbnb now boasts over 4 million hosts who have served over 1 billion guests since its founding.

As each new host and guest come on board, the company's vast network grows exponentially stronger as its marketplace becomes evermore efficient. Highlighting these efficiencies, Airbnb's sales grew 58% year over year for Q2 in 2022 and its free cash flow margin came in at a massive 38% -- helping to justify the stock's recent run-up in price.

Even after this jump in share price -- and removing the stock-based compensation from its free cash flow -- Airbnb still trades at an intriguing price-to-free cash flow (P/FCF) of 36.

ABNB Market Cap Chart

ABNB Market Cap data by YCharts

Furthermore, this market capitalization of $73 billion includes the company's $10 billion cash balance, making this valuation even more interesting. Anytime a company's revenue growth rate is larger than its P/FCF ratio, investors should take note as it potentially highlights growth at a reasonable valuation.

Adding even more fuel to Airbnb's growth prospects are its recently introduced split stays -- which do exactly as its name suggests, allowing guests to stay at different locations on the same trip. This simple idea could help increase marketplace efficiencies between hosts and their clients, allowing guests increased flexibility when dealing with specific dates they need to use.

With analysts projecting 37% sales growth for 2022 as the travel industry continues its rebound, Airbnb's cheap valuation and steadily improving free cash flow margins make it a great stock to buy -- even after its recent price increase.