It’s easy for growth-oriented investors to fall into a common trap: thinking that only “undiscovered” companies can be growth stock winners. Simply put, this is a fallacy. Think about Microsoft in 2014. The company was hardly a spring chicken back then, but it still had plenty of room for growth. In fact, a $10,000 investment on Jan. 1, 2014, would now be worth $89,000.
The lesson? Growth stocks come in all shapes and sizes. Sure, some are new arrivals falling into the small- or mid-cap category, but others can be large- or mega-cap stocks that have been around for decades. Moreover, their growth phases can extend much longer than some investors think.
So, let’s look at my top growth stock to buy now, a travel disruptor that is transitioning to travel industry mainstay: Airbnb (ABNB).
Airbnb still has plenty of gas left in the tank
Airbnb, which operates an online platform that connects landlords (hosts) with renters (guests), has seen its shares skyrocket higher by 67% on the back of solid financial results and robust travel demand.
The company’s asset-light business model has disrupted the traditional travel industry since it relies on hosts to provide the real estate, cleaning, and other costs typically supplied by hotel management groups. As a result, the company turned in another solid financial report for its most recent quarter (the three months ended on June 30). Highlights included:
- $2.5 billion in revenue, up 18% year over year
- $650 million in net income, representing a 26% net income margin
- $900 million in free cash flow, up 13% year over year
- $0.98 in earnings per share, which beat analyst expectations of $0.78
What’s more, the company continues to lean into the idea of facilitating long-term stays. In June, stays of three months or longer accounted for 25% of total monthly stays, up from 18% in April.
Its addition to the S&P 500 shouldn’t be ignored
Here’s a tip for those looking to find great growth stocks: Keep your eye out for new additions to the S&P 500. That’s because it is one of the most-watched stock market indexes, and when a new component is added, it can act as a rite of passage for the stock.
A selection committee determines which stocks are included in the index. While the exact rules are complicated, entry mostly comes down to being a profitable, publicly traded American company with a market cap that ranks close to the top 500.
While the benefits of joining the S&P 500 are mostly symbolic for Airbnb, it’s another sign that the company is making the transition from a promising upstart to a mainstay within the travel industry.
Why is Airbnb a buy now?
For me, Airbnb remains a solid buy because it’s still growing strong and should continue to do so for years to come. Its recent quarter demonstrates that the company still delivers solid revenue growth. What’s more, the stock is reasonably priced with a price-to-sales (P/S) multiple of 10, well below its lifetime average of 16.
Granted, concerns persist about the health of the economy and whether travel budgets will shrink as high interest rates eat away at consumers’ spending power. Nevertheless, for long-term growth investors, Airbnb is a stock worth considering.
— Jake LerchWhere to Invest $99 [sponsor]
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Source: The Motley Fool