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with S&P 500: down about 19% this year, it’s been a rough 2022 for equity investors. While it’s nice to see your stock consistently rise, times like these can be good for long-term investors to buy shares in companies that still have good prospects.

Airbnbof (NASDAQ: ABNB) the stock price fared worse than the overall market, falling 44%. Of course, you have to do a lot more work before handing over your hard-earned money just because stocks plummeted. Now would be a good time to check Airbnb’s fundamentals to see if the stock represents a good buying opportunity.

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Profitable, but potholes ahead

Airbnb has become a leader in connecting hosts who want to rent out their homes to guests who need a place to stay. And the company quickly grew revenue.

In the third quarter, sales increased by 29% and amounted to 2.9 billion dollars. Gross booking value (the dollar amount of bookings) increased 31% to $11.9 billion, mainly due to higher volumes, but the average daily rate also increased. Airbnb’s net income grew 46% to $1.2 billion.

For the first nine months of the year, the company reversed last year’s losses, reporting a profit of $1.6 billion, compared to a loss of $406.5 million a year earlier.

They appear to be heading in Airbnb’s direction, but with the Federal Reserve taking aggressive action to slow inflation, many economists are predicting a recession and the travel business could slow as people cut back on vacations. For example, consumers spent 3.5% less on travel in 2008, followed by another 9.8% decline in 2009.

Fierce competition

The company continues to strive to attract and retain hosts, but Morgan Stanley analyst Brian Novak has become more cautious about its ability to continue growing supply. He believes Airbnb’s ability to grow listings will become more difficult as it becomes a larger company and growth rates return to more normalized levels. That would limit Airbnb’s ability to expand.

Airbnb also faces fierce competition for guests. Expedia: (NASDAQ: EXPE), with more than two million listings across its various products, including Vrbo, remains formidable. Although Airbnb does not publicly disclose the number, it is reported to be somewhere between five and seven million. However, Vrbo hosts get access to the entire Expedia network, which is a big plus.

There are also many online travel agencies, websites such as Tripadvisor: (NASDAQ: TRIP)and traditional hotel chains are similar Marriott (NASDAQ: MAR). The hotel experience is certainly different from a home rental, but it remains another option that vacationers can choose from.

Airbnb has done a good job of growing hosts and guests. But it shares the market with others competing for this segment of the vacation market.

Evaluation

The fall in share prices since the start of the year has led to less expensive valuations. The price-earnings ratio (P/E) fell from 120 to 39. However, this doesn’t mean Airbnb stock is a bargain.

Compared to the general market, it remains expensive. The S&P 500 has a P/E of 21, which means Airbnb shares are trading at nearly double that. While Airbnb has seen rapid revenue growth amid a potentially slowing economy and major competition, that may not last.

Therefore, even with Airbnb’s steep price drop, investors should look elsewhere when bargain hunting.

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Lawrence Rothman, CFA has no position in any of the stocks listed. The Motley Fool has positions on and recommends Airbnb and Tripadvisor. The Motley Fool recommends Marriott International and offers the following options: January 2023 long $115 calls with Marriott International. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and may not reflect the views of Nasdaq, Inc.

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