I think that Airbnb (NASDAQ: ABNB) could be a top stock for me to buy for my portfolio in August. Its IPO in December 2020 saw the stock rocket to $216 in February before falling down to $139 today, due to worldwide travel restrictions. I think that if second-quarter earnings are positive in August, the stock could rebound to over $200 by autumn.
The key to a recovery in Airbnb’s share price by is a global unlocking of travel. This can only happen when Covid-19 is under control. In the UK, every adult has been offered at least one vaccine dose, while in Europe and the US, more than half of people have had one dose. As school holidays start across the Western world, governments are coming under increasing economic and societal pressure to allow tourism to restart.
The Delta variant is causing concern, but I think that as more and more people are vaccinated, the worst of the pandemic is behind us. Two days ago, CEO Brian Chesky predicted a “travel rebound of the century.” The company has spent six months making over 100 improvements to its app. This includes faster checkout, clearer cancellation policies and doubling customer service agents. It is also taking on more hosts to cope with anticipated higher demand.
I think the company could benefit from the drive to flexible working. If millions of employees are spending only two days per week in the office, they might live somewhere cheaper, then spend one night a week in accommodation closer to work.
A top stock to buy in August
While the company has stayed resilient throughout the pandemic, it is still a travel company, First-quarter results did not make for pretty reading, with a $1.2bn loss. However, half of the $1.2bn loss can be ascribed to repaying a long-term loan and paying compensation for cancelled bookings. I think these are not the expenses of a bad business, but a result of strain from external sources. Revenue was actually higher than in the same quarter last year, partly because long-stay bookings were up 14%.
Gross income from customer bookings increased by 52% to $10.3bn compared to the same quarter last year. This seems to support the CEO’s opinion of the travel rebound. I think the pent-up demand is high, and when travel opens up again, it could make Airbnb a top stock to buy in August.
Encouragingly, with less than 2% short interest outstanding, hedge funds are not betting on its valuation to fall. Moreover, the company has built up $6.59bn in cash against debts of $2.46bn to give a net cash position of $4.13bn. Its profit-to-share (P/S) ratio is at 25. This can seem high, but I believe has to be put in the perspective that its core customers have been unable to use its business nearly two years.
I think there are risks to the company though. Ongoing lawsuits from unhappy customers and negative press from poor experiences need to be handled delicately. If coronavirus resurges, travel restrictions are likely to remain in place. Furthermore, new laws limiting too many hosts from using their properties for Airbnb may be coming down the pipeline. However, I think on the balance of risk, Airbnb is a top stock for me to buy in August.
Charles Archer has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Airbnb, Inc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.