Airbnb (NASDAQ: ABNB) had a successful IPO debut on Dec. 10, amid uncertainty for the global travel industry during the pandemic. It is too early for Airbnb to prove if the enthusiasm about its stock is justified. The company has not yet released its first earnings report since it went public. But focusing on logic and pure facts, here are at least five key reasons to avoid ABNB stock now.

Starting with a big one where the math just doesn’t add up.

Negative Shareholder Equity

Shareholders’ equity sometimes is neglected by investors, mostly because it is calculated using historical data. It is, however, a very useful and key financial metric when analyzing any stock, as it shows the net worth of a company taking into account all financial assets and liabilities.

In its simplest meaning, the shareholders’ equity shows the book value of the equity, or total assets minus total liabilities, and is an indication of what in theory a company would be worth if it was to be liquidated. Selling the assets, repaying all the liabilities, and having the rest to be distributed to the shareholders. The larger this amount, the better it is for all shareholders. More economic value is added to distribute in a potential liquidation.

The problem for Airbnb is that it has a negative shareholder’s equity now. Data from Morningstar shows that in 2018 for Airbnb the total stockholders’ equity was around -$520 million and in 2019 -$810 million.

This is the first very large red flag associated with the second key reason to avoid the stock. A lofty valuation.

A Valuation Very Hard to Justify

The current ABNB stock price is around $183. The company has a market capitalization of $109 billion. With revenue of about $3.6 billion for the trailing 12 months, Airbnb trades at 30 times its trailing 12-month revenue. For a company that has been public for less than two months and which is unprofitable, this valuation is too excessive.

And yes, someone may argue that the pandemic has hurt the company and the majority of travel and leisure stocks, but even in 2019 with no pandemic, present losses widened to -$674 million.

In 2018, net losses were only $20 million. For the trailing 12 months, the net losses have risen to -$1.05 billion. With profitability absent and net losses getting bigger, investors are too optimistic about ABNB stock prospects.

The Business Model Has to Prove Its Worth

I like the business model and concept behind Airbnb. It is a smart idea that has disrupted the travel industry. And a lot of focus is placed on expectations that the company will continue to witness high growth in the future. Not to mention the fact that the stock market has discounted, to a large extent, the post-Covid return to normality as in 2019, before news in December that was an early indication of what would happen a pandemic in 2020 and until today.

The optimistic scenario is that by mid-2021, the pandemic may be history. The travel industry should rebound fast. But what if this optimistic scenario proves to be wrong?

In the event vaccine rollouts fall behind the schedule globally, then not only Airbnb but the whole world faces the threat of a prolonged Covid-19 pandemic is too severe. Global infection Covid-19 cases remain high and are on a rising trend. We have not yet seen the global infection curve slope decidedly downward for a consistent period.

That means international travel is still highly restricted and people remain uncertain about when and if they will travel for pleasure and business.

If the travel industry rebounds fast, so will the competitors of Airbnb. I recently wrote about three hotel stocks being the largest threat to Airbnb.

I believe investors should give plenty of time to Airbnb to justify the dynamics of its business model with real financial results, not just expectations.

Any Earnings Miss May Send Stock Lower

Rational investors are not buying stocks just following their momentum. They weigh key financial metrics for sound investment decisions, or at least to allow for a margin of safety. The stock has fallen somewhat away from its highs, but is still up over 6% in slightly over a month of trading.

And the company has yet to release its first earnings since it went public. With expectations so high any earnings miss or a business outlook that does not seem too optimistic could send the stock to a much lower stock price.

Not to mention that we do not have a trend yet for sales growth, or free cash flows as the company went public in December 2020.

IPOs Exuberance May Come to an End

There is a high probability that many of the stimulus checks provided by the U.S. government have been invested in the markets by people who anticipate a rebound of economic growth in 2021. This has created several stock rallies, and Airbnb may be just one of them.

This trend may soon end the exuberance for IPOs that started in 2020. With valuation stretched for major stock indices, any stock sector rotation or investment style rotation to safety will support value stocks. And those people will shift capital out of growth stocks or IPOs such as Airbnb.

I believe there are too many expectations on this stock. Unless the business model of the company proves that it is profitable, and the valuation returns to logical levels, ABNB stock is one to avoid for prudent investors.

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