After briefly trading above $17 as recently as May the Webjet Limited (ASX: WEB) share price has fallen more than 20%. Has this created a buying opportunity for investors?
About Webjet
Webjet is Australia’s leading online travel agency offering booking services for flights, accommodation, car hire, cruises and tours. The company was established in 1998, listed on the ASX in March 2000 and now has operations that reach much of the globe. With a market capitalisation of more than $1.8 billion at the time of writing Webjet has become somewhat of a market darling in the small to mid-cap space in recent years.
Webjet’s High Growth Phase
Webjet aspires to be the leading global business-to-business (B2B) operator in the travel marketplace. Webjet benefits from an ability to cross-sell its offerings between its various business segments. Its key growth levers come from its distribution capabilities which allows it to provide a vast breadth of choice to its agency partners.
Webjet is currently in a significant growth phase, evidence of which can be seen in its soaring revenue and profit figures. Much of the growth has come from acquisitions which have significantly increased the global size and scale of the company. Last November Webjet raised more than $150 million via a capital raising in order to acquire Destinations Of The World (DOTW), a Dubai based B2B accommodation wholesaler.
The company’s half-year report back in February was well received by investors as total transaction value (TTV) soared to $1.9 billion and was accompanied by a rise in profit before interest, tax, depreciation and amortisation (EBITDA) of 42%. Within a week the share price had rocketed nearly 40% higher.
Ongoing Risks
The travel industry is inherently volatile with fortunes rising and falling with the economic cycle. In good times consumers have more discretionary dollars available for travel but when times are tough travel tends to be one of the first things that gets cut from the budget. A weakening Australian dollar (AUDUSD) may create further headwinds for Webjet as it reduces the purchasing power of the Aussie dollar for overseas travel. However, this is now somewhat offset by the continued expansion into global markets.
Is It A Buy?
Currently trading on a trailing price-earnings (P/E) ratio of 32 times Webjet might sound expensive but given the rapid rate of growth this valuation metric is likely to be very misleading. If management is able to successfully execute over the coming 12-24 months I think the share price is likely to be significantly higher than it is today. Personally, I will be waiting to analyse the financial statements due to be released in August along with an update regarding the progress of the DOTW acquisition before buying shares.
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Disclosure: At the time of publishing, Luke has no financial interest in any companies mentioned.
