Finding cheap stocks in today's market has become a bit difficult. Many valuations have become inflated thanks to investor enthusiasm, but I've identified two stocks that are still worth buying at today's prices.
Airbnb (ABNB 0.75%) and MercadoLibre (MELI 3.09%) are both relatively cheap and have bright prospects. Read on to find out why they are fantastic buys now.
Airbnb
Airbnb has become the go-to place for alternative stays and experiences. Whether you want an entire house, an apartment, or just a room in someone's residence, the platform has become synonymous with not staying in a hotel.
To start 2023, Airbnb saw its nights and experiences booked rise 19% year over year. This helped increase revenue by 20% to $1.8 billion and produce a profit of $117 million, its first ever in the first quarter.
While these were great results, there are some concerns in the second quarter. Management projected revenue growth of 14% and noted that nights and experiences booked would be lower than revenue growth. But recent news has cast doubt on these projections.
AllTheRooms, a vacation rental site, says that it has data that shows revenue in Phoenix and Austin, Texas, has dropped by nearly 50% over the past few months. Conversely, AirDNA, a collector of short-term rental data, claims this is incorrect, and that revenue has only dropped by 3%. This news hasn't affected the stock yet, causing some investors to wonder if Airbnb will struggle for the rest of the year.
Some analysts have dropped their projections for the second quarter. They were expecting $0.83 in earnings per share (EPS) 90 days ago, but that figure has fallen to $0.75 recently.
Regardless, Airbnb has established a place in travelers' minds. So even if it sees an economic-induced slowdown, the company will likely be fine when consumers regain confidence. It has plenty of growth ahead, making its current valuations reasonable.
ABNB PS ratio data by YCharts.
Its trailing price-to-earnings (P/E) ratio is expensive, but its price to free cash flow ratio is a better metric because Airbnb is still working on achieving peak profitability and is very attractive. With a price-to-sales ratio of 10, it's a reasonable buy now for a company that has produced top-tier software company margins.
But beware: The stock may go through a few short-term movements depending on what is said during its second-quarter earnings report in early August.
MercadoLibre
Many are worried about a recession in the U.S., but the Latin American economy seems to be doing just fine. MercadoLibre is one of the best companies to assess the economy's pulse in this corner of the world because its e-commerce platform is the most dominant in the region. It also has other services like shipping logistics, consumer credit, and a digital payments platform.
In the first quarter, gross merchandise volume rose 43% year over year, an acceleration from previous quarters. This shows plenty of strength among Latin American consumers, a positive sign for MercadoLibre.
An even stronger growth source has been Mercado Pago, the company's digital payments platform. It added nearly a million users in the first quarter, lifting its customer base to 44.5 million. Increased total payments volume helped drive revenue 64% higher to $1.36 billion, just slightly under what the commerce side brought in at $1.68 billion.
Wall Street analysts expect the good times to continue for MercadoLibre, predicting 28% growth in 2023 and 23% in 2024.
Despite that outlook, the stock trades well below its average valuation over the past decade.
MELI PS ratio data by YCharts; PS = price to sales.
This low price doesn't reflect how strongly the business is executing and represents a massive bargain for the stock. With plenty of growth ahead for MercadoLibre and what I view as an absurdly cheap stock price, there are few better buys in the market.
