In the month since Airbnb’s (NASDAQ:ABNB) IPO one thing is fairly clear: Airbnb stock was perfectly priced and there looks to be little reason to buy now.

Many of my colleagues at InvestorPlace expressed the idea that Airbnb shares are likely to have a bright future. Those same colleagues also readily admit that right now the shares are simply a hold and that the best time to load up will be during a dip.

Airbnb has competition and while it is the name in vacation rentals, it will face pressure. The company will face pressure from those competitors as well as pressure on its stock based on current valuation. 

Pricing of Airbnb Stock

Investors have good reason to believe Airbnb stock is too expensive now. First of all, the market reception and subsequent shake out following the IPO show that the company is fully valued by investors. 

When shares began trading on Dec. 10 at $146, investor trepidation had already set in. Share prices quickly dropped down below $125 by Dec. 15. So, although the company had the third biggest IPO of 2020 with a value of $3.5 billion, investors in those first trading days lost money. 

The reason Airbnb stock dropped was because while it represents a bright future with a great brand, it also had a bit of a rough 2020 and is currently overvalued. Airbnb shares sit at $142.77 as I write this article so basically they are flat since they began trading on Dec. 10. 

Essentially it has taken markets a month to figure out that there’s no reason for shares to be priced higher. 

Valuation Metrics Should Give Pause

Investors who look at a few key valuation metrics will quickly realize why prices can’t rise. I shouldn’t say “can’t” because 2020 saw wild markets where traditional valuation metrics meant next to nothing. But ABNB shares shouldn’t rise based on price-to-sales ratio. 

The stock has a P/S ratio of 67.34, which is nearing the lowest 5% of industry peers. 

I expect one of two things to happen in regards to Airbnb’s high P/S ratio and its high valuation in general. It might simply stay high as shareholders wait for the inevitable surge in sales that should happen as the pandemic subsides when vaccine immunity takes hold, and “normal” resumes. 

But perhaps the stock will be pulled down in price as markets might sell to bring it more in line with valuations of other competitors. If that happens ABNB stock would see its P/S ratio come closer to that of competitor Booking Holdings (NASDAQ:BKNG). 

However, both companies are overvalued at current prices. The more likely scenario in my mind is that high prices and overvaluation remain the norm into 2021 with no correction in sight. 

Expectations

Many individual stocks, and markets in general, simply rose when they otherwise shouldn’t have in 2020. The S&P 500 has risen over 16% over the last year. The Nasdaq, a whopping 40.49% in the same period. This despite the ongoing pandemic. 

2020 was a year in which markets saw IPOs and SPACs really take off although the numbers many times didn’t make sense. As long as we remain in this pandemic a lot of things are going to continue to be strange. Particularly, investors are simply going to continue to assume that companies will have rocket fuel in their tanks once we return to normal. 

Ostensibly Airbnb stock will continue to remain overvalued as the markets wait for the post-pandemic rebound. This is true for lots of other stocks and for markets in general. 

Verdict

Certainly don’t rush out to buy Airbnb stock now. I don’t really think it’s going to be that interesting of a stock once things normalize.

Airbnb is a good company and it was a pioneer in the vacation rental space, but I think it has to come down a long way to be a buy. I just don’t see that happening until well after normal life resumes.

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.