Airbnb, Inc.'s (NASDAQ:ABNB) P/E Is On The Mark

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 15x, you may consider Airbnb, Inc. (NASDAQ:ABNB) as a stock to avoid entirely with its 40x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With earnings growth that's superior to most other companies of late, Airbnb has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Airbnb

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Airbnb.

Does Growth Match The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Airbnb's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 148%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 16% per year over the next three years. With the market only predicted to deliver 11% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Airbnb's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Airbnb's P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Airbnb's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Airbnb with six simple checks.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.