Being a contributor with The Motley Fool affords me an incredible privilege: I get to spend much of my time discovering and analyzing a lot of cool companies. But at times it feels like information overload…
To illustrate, consider that The Wilshire 5000 Total Market Index is designed to track all publicly traded U.S. companies. At last count, there were over 3,400 stocks in the list, showing just how many investing options there are — and there are thousands more if you look internationally.
I haven’t looked over all 3,400 U.S. stocks and likely never will. But of the stocks that I track, Airbnb (NASDAQ:ABNB), Peloton Interactive (NASDAQ:PTON), and Pinterest (NYSE:PINS) are my three favorite investments right now. Here’s why.
1. Airbnb: The reopening-economy investment
Have you seen the recent commercials for Airbnb? The company’s current ad campaign isn’t really targeting travelers. Rather, the campaign is named Made Possible by Hosts, and it aims to attract new hosts (people who offer their spaces as short-term rentals) to the platform. In a recent CNBC interview, CEO Brian Chesky said, “To meet the demand over the coming years, we’re going to need millions more hosts” [emphasis added]. This is in addition to the whopping 4 million hosts it already has.
Prior to the Made Possible by Hosts campaign, I’d never seen an Airbnb ad. But that’s because Airbnb hadn’t done any large-scale advertising in over five years. That may sound odd for a growth stock like Airbnb, but remember that the company doesn’t need to drive business to its platform through marketing. According to the documents it filed when going public, 91% of Airbnb’s guests came in organically during the first nine months of 2020.
Various surveys suggest that as the coronavirus vaccine is distributed, people intend to travel at least as much as they did before the pandemic. Some even plan to travel more to make up for lost time. Airbnb is a top-of-mind platform as evidenced by its organic traffic, which is why I like the company’s odds for attracting much of this reopening-economy upside. And as management dials its focus in on attracting new hosts, I like its odds for acquiring enough long-term supply to meet increasing demand.
I typically don’t invest in IPO companies early on because they can be volatile. Indeed, there’s a reason Airbnb stock could be volatile in 2021. Almost 80% of shares are held by insiders and can’t be sold until after the company reports earnings for the first quarter of 2021 on May 13. Once this lockup period expires, the stock could head lower as insiders are finally able to sell.
So there’s risk. But Airbnb is still in the early innings of its growth story. And 2021 is shaping up to be an epic comeback year. For these reasons, this is still one of my favorite stocks right now.
2. Peloton: Surprising value
Another one of my favorite stocks right now is at-home fitness company Peloton Interactive. Some investors look at its price-to-sales ratio of 10 and say that’s too high for an exercise-hardware play. But I believe Peloton’s stellar historical growth rate gives this stock surprising long-term value at today’s price (around $100 per share).
Since its founding in 2012, Peloton has grown revenue at a roughly 100% compound annual growth rate (CAGR). Don’t expect growth to continue at this astonishing pace forever. That said, management is guiding for over $4 billion in revenue for fiscal 2021 — up 123% from fiscal 2020 — so it isn’t slowing down yet.
Let’s assume Peloton grows at just a 25% CAGR over the next five fiscal years, an insanely sharp drop-off from its historical pace. At that rate, the stock trades under three times potential sales for its fiscal 2026. That’s extremely reasonable for this company, especially as revenue for its subscription services continues growing and profit margins for this segment continue expanding. Will it grow at a 25% annual pace? I have no idea. I make this point only to say this: Judge the stock’s valuation within the context of its revenue growth.
Furthermore, I believe Peloton’s $420 million acquisition of…
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