ASX shares in travel companies have gone from being some of the most unloved stocks to the new favourites following the release of a potential Covid-19 vaccine that could see international travel resume sooner than we previously had thought.
Some of these companies had a great run on Tuesday, and I’m sure many ASX investors have been left wondering if now is a good time to buy shares in some of these companies. Below, I share a few of my thoughts on the case for the ASX’s most popular travel stocks…
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What happened?
Flight Centre Travel Group (ASX: FLT) was up 9% and Webjet Limited (ASX: WEB) was up 13.5% this Tuesday following the vaccine announcement.
As you can see from the graph below, the share prices for both companies, FLT and WEB, haven’t continued to surge from Tuesday’s levels and remain relatively flat.
On Wednesday, Flight Centre announced it had launched an offering of $400 million convertible notes which will be able to be converted into ordinary shares. Capital raising announcements often cause the share price to fall, as some argue that raising new equity has a dilutive effect on current shareholders.
Although this may have been contributing factor to a relatively flat share price, I think it’s more likely that the market might’ve got a bit ahead of itself pricing in such a fast recovery. I’m as optimistic as anyone, but there’s still no guarantee that this vaccine is going ahead, and if it does, it might be quite some time before it’s fully distributed and international travel resumes at full capacity.
Flight Centre and Webjet shares are still down 60% and 51%, respectively, since February 2020. So, is it too late to buy now? Probably not – but I do think if the vaccine situation does take longer than we’ve thought, there’s the possibility that these share prices could drift back to where they’ve been before this announcement.
Webjet vs Flight Centre
I recently wrote an article which compares Flight Centre and Webjet shares in quite some detail. I think both of these companies will recover in the long-run, but if I had to choose one, I’d pick Webjet, here’s why…
Webjet has WebBeds, a leading business-to-business (B2B) accommodation provider across 12,000 destinations globally.
The WebBeds business unit has seen some extremely fast growth just over the last few years, and now contributes more than $62 million (60%) of total group EBITDA.
I believe the WebBeds service line represents a further growth runway that has the potential to bounce back quickly. When it does, its low-cost model will allow the business to scale well as it expands into more regions.
Summary
I don’t think we should underestimate how long it might take for some of these travel stocks to return to pre-covid share price levels.
They’re still so far off these levels that buying shares today, tomorrow, or next month probably won’t make too much of a difference in a long-run.
