Airbnb (ABNB -1.04%) has changed the way many people travel. Instead of staying at a hotel, other options like a bedroom in a house or an entire apartment are available. However, this model has some drawbacks, as many clients have found added-on charges like cleaning fees to be unreasonably high, even as guests are expected to perform many cleaning tasks themselves (such as stripping the bed or taking out the trash).

If you look at the stock, down 48% this year, you'd think issues like this are spelling the end for Airbnb. However, the actual business metrics are still trending in the correct direction.

Cleaning fees are getting fixed

While the cleaning fees may be one of the most annoying parts of the customer experience, CEO and co-founder Brian Chesky is cracking down on that practice. In a tweet, he promised that fixing the abuse of cleaning fees is one of his top priorities and noted the product wasn't intentionally designed, so it has some loopholes.

That fix should satisfy customers, but it remains to be seen whether hosts will jack up the base rate in return. During Airbnb's third quarter, the average daily rates rose 5% year over year, but that number could increase if hosts factor those prices into the upfront nightly rate.

One thing to note, cleaning fees were always subject to Airbnb's service fees, so this won't be a way for the company to make more money.

But even outrageous cleaning fees haven't stopped users from booking on Airbnb.

Airbnb had a strong Q3 and is valued cheaply

In Q3, 99.7 million nights and experiences were booked on the platform, up 25% year over year. That helped power revenue growth of 29% to $2.9 billion. Airbnb has also been responsible with its operating expenses, which only rose 19%.

With the company becoming more efficient, it's generating record profits. Airbnb made $1.2 billion in Q3 -- a 42% margin. It has also generated $3.3 billion in free cash flow (FCF) over the past 12 months, which is why I think it's a screaming buy.

At a $54 billion market cap, the stock trades for a reasonable 16.3 times FCF. While the legacy hotel companies have different business models, Airbnb trades at a lower price than Hyatt Hotels (33 times FCF), Hilton Hotels (30 times FCF), or Marriott International (24 times FCF). Moreover, Airbnb has a very capital-efficient model because it doesn't own properties, giving it superior margins to its competitors, so logically it should command a premium over its peers.

However, that's not the case, which makes me think the stock is undervalued. Wall Street analysts agree; the average analyst has a 12-month price target of $125, indicating a near 40% upside. While a 40% rise would be fantastic, the way Airbnb's future is shaping up, those returns could be much higher over a three-year period.

Earnings are projected to rise

Over the next few years, Airbnb's earnings are projected to grow at a healthy rate.

Year Projected Earnings Per Share Change (YOY)
2022 $2.58 N/A
2023 $2.83 10%
2024 $3.58 27%
2025 $4.73 32%

Data source: Nasdaq. YOY = year over year.

While 2023 may be a slower growth period, 10% is still the market average, and investors should be happy with that, especially with an increasingly challenged consumer. After 2023, the 30% growth rate is truly impressive, and it will be interesting to see if it can deliver on what analysts think it can.

With Airbnb growing at a solid pace, a cheap valuation, and growth on the horizon, 2023 is shaping up to be an excellent year for the stock. Furthermore, the management team is in touch with the platform and isn't going to let a hiccup like cleaning fees get in the way of having a great product. Airbnb is in great shape for the long term, and 2023 is a great time to establish a position in the stock.