Airbnb stock bulls just went all in before earnings

Key Points

• Airbnb is head and shoulders above its peers, enjoying massive bullish momentum in the past year. 
• With no signs of slowing down, markets are giving Airbnb the market cap it deserves at undeniable valuations.
• Analysts may be in for a reckoning when they realize they've been fighting the financials and the market itself.

Earnings season has kicked off, and markets are more tuned into the potential money shifts coming to the economy in this new cycle. One of the most eagerly awaited shifts is the proposed interest rate cuts coming from the FED this year. With that in mind, it Is more important than ever to make sure your portfolio is not exposed to anything that could severely impact your performance.

While some investors may start hunting for bargain stocks in the coming months, you should be looking for momentum and market favoritism. When it comes to real estate stocks, you have two routes: the operations/services area, or the more traditional homebuilder stocks or even REITs (real estate investment trusts). Today, there are reasons to believe the returns could be found in the former.

More on why that's the case in just a minute. For now, all you should worry about is that investors have taken the bull by the horns when it comes to Airbnb NASDAQ: ABNB stock. They are doing this in a predictive attempt to make sure they are positioned in this stock before any potential rally once the business announces its earnings release this month. However, in so doing, traders and investors were careless in leaving a lot of evidence for the rest of the market to follow.

Here's a rundown

Airbnb stock is now flirting with its 52-week high prices and has outperformed the broader S&P 500 index by as much as 12.8% during the past twelve months. This gives the stock the type of momentum you should be looking for in this pivoting economy and confirms that bulls have taken over the stock.

When compared against other real estate operation stocks, like Zillow Group NASDAQ: Z and even the CBRE Group NYSE: CBRE, no one comes close to Airbnb in its business model, brand penetration, and especially in its size. At $96.9 billion in market capitalization, markets convey the message that "Size does matter" because it reflects not only current quality but future growth.

While both Zillow and CBRE also trade above 90% of their 52-week high prices, one factor is creating a massive mispricing opportunity for investors like you to take advantage of today. You see, analysts may be asleep at the wheel in assigning the proper earnings per share growth rates to these names.

Zillow stock analysts expect an impressive 55.1% jump in EPS for the next twelve months, which is more than twice the average rate of 20.1% expected for the rest of the industry. These same analysts, however, think the stock is fairly valued in their $55.5 price target, offering a mere 1.0% upside from today's price.

For CBRE, the story rhymes a bit. With a projected growth of 21.4% in EPS for 2024, analysts believe that this company will perform in line with the industry average yet still assign a 6.6% upside in their $92.3 a share price target. Here's where Airbnb becomes interesting.

At a 4.3% downside from today, in their $141.3 share price target, analysts aren't too excited about the prospect of 8.6% EPS growth this year. You should always take analyst consensus with a grain of salt because they are directly fighting the market as it stands today.

You see, Airbnb not only outperformed the S&P 500 but also the broader Vanguard Real Estate ETF NYSEARCA: VNQ by more than 40.0% in the past twelve months. Despite what analysts say, here is what markets think about this stellar performer.

Difference maker

The market has not only driven the size (market capitalization) of Airbnb to be head and shoulders above the industry, but they are also leaving a major sign of future optimism in their operation.

While the rest of the peers trade at a price-to-book ratio of 3.7x on average, investors – and traders alike – are perfectly fine with overpaying for the stock they think will come out as a winner.

At a valuation of 10.6x P/B, Airbnb stock commands a premium of 185.0% to its peers. CBRE is discounted by 16.0% to the industry average with its 3.1x P/B ratio, and Zillow falls even further with a 3.0x P/B, representing a discount to the industry of up to 21.0%.

Remember the saying, "It must be cheap for a reason?" Well, Airbnb must also be expensive for a reason; here are a few of them. According to their last quarterly earnings results, Airbnb grew its revenue by 18.0% over the year, with net income jumping by 266.0% during the same period.

It wasn't long ago that Airbnb struggled to make net profits, much less free cash flow (operating cash flow minus capital expenditures). Today, free cash flow is reported at $4.2 billion as of the past twelve months, with a 44.0% margin. This impressive feat is a testament to the company's operating efficiency and growing business level.

Do yourself a favor, add this stock to your watchlist and keep a close eye on it; it could really shock you this week.