Sometimes, general market sentiment is enough to steer stocks downward, even though the business's trajectory is clearly pointing in the right direction. This situation is precisely where Airbnb (ABNB -3.66%) finds itself.

Even though the company reported tremendous third-quarter earnings, the stock has fallen nearly 10% and sits at a cheap valuation. Smart investors are the ones who look at Airbnb's business and don't let short-term sentiment affect their long-term investing decisions.

Here's why now could be an excellent time to purchase Airbnb stock, despite its recent trading indicating otherwise.

A blowout third quarter

Every critical metric Airbnb reports grew rapidly in the third quarter.

Metric YOY Change
Nights and experiences booked 25%
Gross booking value 31%
Revenue 29%
Net income 46%

Data source: Airbnb. YOY = year over year.

The first thing to note is that gross booking value (GBV) rose faster than nights and experiences booked. This indicates Airbnb's hosts are successfully charging more for their offerings, showing the hosts have pricing power on the platform.

Rising GBV lets Airbnb scrape more revenue from each booking, and with revenue rising 29% year over year, travel demand stayed high during the quarter despite many consumers feeling the pinch financially.

But the bottom line is what really impresses me: $1.2 billion in net income. That's enough for a 42% net income margin -- enough to beat out Apple (23%), Microsoft (35%), and Alphabet (20%) in their most recent quarters. This elite level of profitability will allow Airbnb to stockpile cash and make key acquisitions or continue repurchasing shares (which it is currently doing to offset dilution from stock-based compensation).

As for free cash flow, Airbnb has generated $3.3 billion of it over the last 12 months. With its current $63 billion market cap, that prices Airbnb's stock at a meager 18.9 times free cash flow. It's rare to find companies growing at this pace with margins this high and an attractive valuation, but that's what the market is giving you.

So why is the stock's price so cheap?

Regulations cast a shadow over Airbnb's business

To start, Airbnb's fourth-quarter outlook was slightly disappointing, at least to some people. Revenue is expected to come between $1.80 billion and $1.88 billion, indicating 20% growth at the midpoint -- a slowdown from last quarter's 29% pace. It also expects nights and experiences booked growth to slow too.

While the company doesn't report net income or free-cash-flow guidance, it expects adjusted EBITDA margins to match or come in slightly higher than the prior-year period's 22% (and well below the third-quarter tally of 51%). Airbnb's business sees seasonal trends, so investors must remember the first and fourth quarters will underperform the second and third.

Still, that's not a terrible outlook, considering the University of Michigan's Consumer Sentiment Index is still near all-time lows. When the economy recovers and inflation stabilizes, Airbnb could see a renewed travel surge, sparking another wave of growth. However, when or if that happens remains to be seen.

One other development investors need to keep an eye on are the increasing calls to regulate Airbnb residences. Many critics point their finger at the company for contributing to a housing crunch, especially in the affordable home and renters markets. On Nov. 4, New York City proposed a set of rules that bans hosts from renting out an "entire registered dwelling unit," among other restrictions, beginning in Jan. 2023.

Now, it's unclear if these rules will be fought in court or if they will spread to other areas of the country, but it's something Airbnb investors need to watch. It will probably be fine if Airbnb is affected in one or two of its large markets, but the investment thesis comes under threat if restrictive policies spread quickly.

I feel that's unlikely to happen, and investors who agree can buy into a fantastic business at a great price. With Airbnb down over 9% just this past month, it's a solid opportunity to purchase some shares.