Airbnb (ABNB 1.17%) could be an underrated buy this year. Although the stock is coming off a disastrous 2022, during which its value crashed by close to 50%, I'm optimistic that things can turn around for it this year.
The company's online booking platform has become a staple for travelers looking to get the most bang for their buck and find unique places to stay. With sound financials and return to normalcy well underway, it wouldn't be surprising if the stock were to turn the tide and outperform the market this year.
Here's a closer look at why Airbnb's stock might be ready for a comeback in 2023.
Airbnb's business looks solid
What's encouraging about Airbnb's business is that although the company's growth rate has been slowing down in recent quarters, it remains strong. For the period ending Sept. 30, 2022, Airbnb's sales totaled $2.9 billion and rose roughly 29% year over year.
ABNB Revenue (Quarterly YoY Growth) data by YCharts
What was even more impressive is that the company's net income of $1.2 billion during the quarter increased an impressive 46% from the prior-year period. Airbnb netted $0.42 of every dollar of revenue as profit compared to $0.37 a year ago.
The company's ability to generate positive growth and deliver a stronger bottom line amid inflation is positive news for Airbnb shareholders because it suggests that the business is in fine shape even under less-than-ideal economic conditions.
Airbnb has plenty of cash on the books
Airbnb is in even better shape when you factor in its cash. Its cash and cash equivalents balance as of the end of the quarter totaled $7.5 billion, which was 24% higher than the $6.1 billion it reported at the end of 2021. That's more than the nearly $2 billion in long-term debt that it has outstanding.
Plus, the business continually has more money flowing through it, with Airbnb consistently reporting positive free cash flow. A strong cash position can make Airbnb one of the safer companies to invest in this year even if inflation continues to be a problem.
ABNB Free Cash Flow (Quarterly) data by YCharts
Airbnb stock may finally be a good buy
Given Airbnb's solid fundamentals, it may seem puzzling that the stock lost half of its value last year. But the reason is likely due more to its price than the underlying business. While the pandemic may have put investors off about investing in travel stocks, the problem was likely that Airbnb was simply too expensive of a buy from the start.
When the growth stock went public in 2020, its valuation was more than $100 billion despite the business not being profitable. Today, Airbnb's market cap is around $54 billion. I believe Airbnb stock's lackluster performance has more to do with its price simply being too high when it first went public rather than it being an indication of a bad business (which Airbnb isn't).
ABNB PE Ratio data by YCharts
Now, at a more tenable valuation, this could be an attractive stock to buy. With the travel industry continuing to show signs of recovery and a return to normalcy -- the International Air Transport Association projects a profit for airlines for the first time since 2019 -- now is as good a time as any to invest in Airbnb stock.
