At the start of the new year, investors had some key reasons to consider the bullish opportunity in home rental platform Airbnb (ABNB). While the consumer economy encountered many challenges, the employment market remained red-hot. In other words, if people really wanted a job, they could find one. Naturally, this secure baseline helped boost sentiment for ABNB stock and its ilk.
Indeed, following the close of Airbnb’s first session of 2023, it posted a per-share price tag of $84.90. Fast forward to Feb. 16 and ABNB stock hit a peak closing price (so far this year) of $139.42. Since then, however, circumstances haven’t been so fortuitous for the underlying enterprise. Just in the past week, shares fell nearly 12%.
Significantly, it appears that options traders may believe additional red ink lies on the horizon. Based on Airbnb’s daily options history on April 6 (since the market closed for Good Friday), out of a total volume count of 110,056 contracts, the put/call volume ratio stood at a lofty 1.88 times, which on paper features bearish implications. As well, the put/call open interest ratio pinged at 1.39.
Based on the benchmark that a put/call ratio of 0.70 reflects the delineation between bullish and bearish sentiment (since the market tends to have an upward bias), one would have to go back to March 7 – where the ratio sat at 0.63 – to see optimistically aligned historical options data. Therefore, it’s possible that the smart money could be sensing rough waters ahead for ABNB stock.
Adding to this concern is that other sources have also tracked unusual options data for Airbnb which likewise indicate bearish sentiment among big-money traders. With multiple signs suggesting that investors should adopt a cautionary approach, ABNB stock seems perhaps unnecessarily risky.
Fundamental Headwinds Trip Up ABNB Stock
To be fair, it’s not always helpful to follow the implications of market performance or even the ebb and flow of options trades among the smart money. No matter how smart some folks are, they can always get things wrong. With ABNB stock, however, the challenge for those committed to the bullish narrative is that the fundamentals don’t support it like they used to.
For starters, while the labor market has been smoking hot, this assumption may be due for a correction. Yes, the latest jobs report indicated that in March, employers added 236,000 jobs. While a nominally impressive tally during these ambiguous times, the AP noted that it represented “…a slowdown from February’s 326,000 and slightly below economists’ expectations. Wages, meanwhile, grew 0.3% from February to match expectations. But year-over-year wage gains slowed to 4.2% from 4.6%.”
Notably, the Federal Reserve attempted vigorously to control inflation through raising the benchmark interest rate. But doing this of course slows down economic activity. As the AP pointed out, this dynamic “…raises the risk of a recession and hurts prices for stocks, bonds and other investments.”
For quite some time, the labor market overall kept surging despite the Fed’s rate hikes. However, mass layoffs that prominently originated in the technology sector has begun filtering down to other industries, which should translate to fewer people having higher-paying jobs. Logically, then, this framework should be net negative for ABNB stock and the broader travel ecosystem.
Moreover, the surprise oil production cuts by OPEC+ may impose significant hardships on the consumer economy. With fewer energy sources meeting high demand, the price of critical resources will likely continue accelerating, which symbolizes inflation. Therefore, the Fed may have little choice but to raise rates even more to curb rising prices.
Then again, a hawkish strategy at this juncture will likely usher in a recession. If so, that’s not the backdrop that ABNB stock needs right now.
Analysts Are Bullish (for Now)
What makes ABNB stock a tricky proposition is that Wall Street analysts generally like the underlying enterprise, pegging it a consensus moderate buy. This assessment breaks down individually to 12 strong buys, two moderate buys, 13 holds and two strong sells. Three months ago, the assessment was the same. However, ABNB enjoyed one fewer strong buy rating and one more hold.
According to TipRanks, of the analysts covering ABNB stock during the past three months, the average price target stands at $142.89. This figure implies upside potential of over 30% against Friday’s close. That’s not a bad deal.
On the other hand, the investment resource also notes that in the past 90 days, three analysts pegged ABNB as a sell. Further, the most pessimistic price target sits at $98, which implies more than 31% downside risk. With the broader narrative tilting against ABNB stock, investors should be extremely cautious about their next move.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
