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Avoid Airbnb After Its December 10th IPO

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

If you do both well, it helps you earn higher than average investment returns and build wealth.

Because the fewer investment losses you have the more capital you keep. And the more capital you keep the faster you compound your money.

To help you figure this out, today I tell you why to Avoid Airbnb After Its December 10th IPO.

Airbnb (ABNB) is the worlds largest online accommodation agency offering more than 5.7 million active listings seeing more than 247 million guests in more than 220 countries worldwide.

Back only a few weeks ago on December 10th, 2020 it IPO’d on the market.

Its based in San Francisco California.  It has a $96.1 billion market cap. And its massively overvalued…

Airbnb IS NOT Cheap

With the markets at or near all-time highs you’d expect a fast growth stock like Airbnb to be selling at an enormous valuation.

Unfortunately, it is.

But I can’t show you this with the normal metrics I use like P/E, P/CF, and EV/EBIT.

Why?

Because its unprofitable on a net income, cash flow, and operating profit basis respectively.  And this means the above metrics would be negative.

So how do I know its overvalued by a massive amount?

By comparing it to other stocks of equivalent size.

In this case an almost exact match in terms of market cap is a company I first told you was a buy back in July 2020 – John Deere & Co (DE).

Its current market cap is $95.3 billion.  When I first told you to buy it back in July 2020 it had a market cap of $55.1 billion and was undervalued compared to its profitability.

In the last year, it generated $35.3 billion in sales.  And on this it earned $3.9 billion in operating profit and $4.8 billion in free cash flow.

And its current valuation metrics are…

Its P/E is 34.6.

Its P/CF is 12.7.

Its forward P/E is 24.

And its EV/EBIT is 34.5.

On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.

And on EV/EBIT I look to buy stocks below 8.

Meaning that John Deere is as of this writing massively overvalued… While being far more profitable than Airbnb.

John Deere stock since July is up 72.9% largely because it was undervalued then while producing huge profits.  The market saw this.  And helped increase the size of the company a lot.

As mentioned above I can’t show you Airbnb’s valuations because its unprofitable. But how do its revenues, profits, and cash flows compare to John Deere?

In the last 12 months Airbnb produced $3.6 billion in revenue, negative $681 million in operating profits, and negative $743 million in free cash flow.

John Deere is 15X + more profitable than John Deere when it comes to operating profits.  And 25X+ more profitable on a free cash flow basis… And its massively overvalued now.

Meaning that Airbnb with about the same market cap isn’t just overvalued… Its extraordinarily overvalued compared to what its operations produce.

This makes owning its stock enormously risky.  And for this reason, I recommend you avoid buying it.

Conclusion

If you’re looking for a solid, safe, dividend paying, stable, and enormously profitable investment to buy – avoid Airbnb and consider investing in one of the stocks I recommend below.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above

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