Investors are falling in love with Opendoor Technologies (OPEN +3.05%). But should they be? The stock has soared 500% in the last three months even though the business has extremely low gross margins and has never generated a profit while taking on a lot of debt to grow. A poorly thought out business model is going to hold back the iBuying business, regardless of how vocal shareholders are.
Instead of buying Opendoor stock, investors should look for businesses that are already profitable and have a history of revenue growth. Here's why Airbnb (ABNB +0.87%) and Lululemon Athletica (LULU +3.07%) are two better buys for your portfolio than Opendoor today.
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Airbnb's steady growth and profits
As one of the largest travel platforms in the world, Airbnb has turned its disruptive home-sharing lodging innovation into a mainstream phenomenon. The concept has become prevalent in English-speaking markets as well as France, which drive the majority of bookings for Airbnb.
Now, over the next few years, the company wants to make Airbnb travel more prevalent in other popular vacation destinations such as Japan or Brazil. Last quarter, nights booked in both these regions grew around 15%-20% (management did not give out precise figures), which outpaced overall bookings growth.
NASDAQ: ABNB
Key Data Points
Global expansion can help Airbnb's revenue steadily grow in the coming years. Last quarter, revenue was up 13% to $3.1 billion, with a net income of $642 million for a 21% profit margin. Airbnb is reinvesting much of its core profits to expand globally but also add on new features to the service such as Experiences and Services. These are new product categories that can help drive more spending from tourists on the Airbnb platform.
While these products have long-term potential, Airbnb's profit margin may be compressed in the interim as it invests to build all the digital infrastructure to manage them, as well as market them.
Airbnb has strong unit economics that should allow its net income margin to expand much higher over the next decade although it is already a profitable business (unlike Opendoor Technologies). Today, Airbnb's forward price-to-earnings ratio (P/E) is 31, which looks expensive on its face. However, through steady revenue growth and profit margin expansion, this P/E ratio can come down quickly over the next five to 10 years. This makes Airbnb stock an easy buy-and-hold today.
Lululemon's comeback potential
A company that is in a slightly worse position than Airbnb from a growth perspective is Lululemon, but it still remains profitable and has been for many years now. The opportunity for Lululemon comes from its dirt cheap forward P/E ratio of 14, which is at one of its lowest levels ever due to the stock price's 60% collapse from all-time highs.
Investors are worried that Lululemon's growth is slipping away in North America, and pricing the stock like the brand is going to be irrelevant in a few years time. That couldn't be further from the truth. Lululemon's revenue in North America was only up 4% year over year last quarter, but it was still growing. International revenue increased 20%, driven by growing penetration into China.
Overall revenue grew 8% on a constant dollar basis while many players in casual apparel and athleisure have experienced declining sales this year.
NASDAQ: LULU
Key Data Points
What this means is that Lululemon keeps growing its market share of dollars spent in its category, with plenty of room to keep growing internationally. Revenue growth should accelerate in the years to come, which is not being priced in at all with the forward P/E at just 14.
Management has begun to repurchase a boatload of stock, driving shares outstanding down 8% in the past five years. This will further help grow earnings per share (EPS) and bring down the stock's P/E ratio. Add everything together, and Lululemon looks like a great stock to buy after its massive drawdown in 2025.
