Airbnb (ABNB 0.80%) shareholders are having an excellent year. The travel rental specialist's stock hasn't trailed the S&P 500 at all and its returns through early June tripled the market's 11% increase in the period.

Airbnb's last quarterly update helped extend those gains, even though management predicted slower sales growth trends in the fiscal second quarter. Let's look at some big reasons to still like Airbnb stock despite its higher valuation today.

1. Healthy growth

Investors were worried that Airbnb would start seeing increased sales pressures from competition, rising prices, and slowing economic growth trends. But these factors didn't derail its impressive momentum in early 2023.

On the contrary, Airbnb saw a 19% increase in first-quarter booking volumes, up to 121 million, along with a 25% spike in order backlog. Its global sales footprint was a valuable asset here. While revenue in the U.S. rose 13%, sales accelerated faster in places like Latin America, Asia, and Europe. Average daily rates held steady at $168, too.

2. Ample cash flow

Financial headlines focused on Airbnb's improving profitability, with net income landing in positive territory for the fifth consecutive quarter. The company posted its first-ever year of positive annual earnings in 2022 and is on pace to boost margins this year.

Yet investors should be even more excited about cash flow, which already points to excellent financial strength ahead. Airbnb is now consistently turning more than 40% of sales into free cash flow on an annual basis. That figure hit a record $3.8 billion in Q1 after quarterly free cash flow jumped 87%.

Success here promises to lift investors' returns in several ways, including by boosting earnings over time. Ample cash is powering aggressive stock buyback spending, too, which has reduced the outstanding share count to 697 million in Q1 from 706 million a year earlier.

3. An emphasis on boosting long-term supply

It wasn't all good news in this report, though. Travelers, especially in the U.S., are getting more cautious about booking more expensive rooms and houses. Airbnb is hoping to neutralize this issue with pricing changes that add incentives for hosts to be more competitive in this area. Investors will want to watch average daily rates for signs of success here.

Airbnb's supply of homes is also a key metric to watch going forward. It is critical that supply rises at least on pace with demand across the company's urban and non-urban markets. That's a big reason why the company is working to make hosting easier and is pushing into new niches like apartments. "Traveling on Airbnb is mainstream," executives said in a letter to shareholders. "We want hosting to be just as popular."

Valuable growth

Whether or not Airbnb grows into its elevated valuation might depend on the company's success on this score. Investors are being asked to a pay a high premium for that growth potential, with shares valued at 9 times annual sales right now. This valuation might easily shrink if travel demand falls due to an economic growth slowdown.

On the other hand, Airbnb has a good shot at continuing to expand sales at a nearly 20% rate even as the profit margin and cash flow trends improve. Annual earnings will be much higher in a few years under that bullish scenario, and investors shouldn't ignore that potential when considering owning this growth stock.