The Webjet share price jumped 35% in May: Is it too late to invest?

One of the best performers on the S&P/ASX 200 Index (ASX: XJO) last month was the Webjet Limited (ASX: WEB) share price.

Over the month of May the online travel agent’s shares rallied just over 35% higher.

This means they are now up 84% since hitting a multi-year low of $2.25 in April.

Why did Webjet’s shares rocket higher in May?

Investors were scrambling to buy travel shares such as Webjet and Flight Centre Travel Group Ltd (ASX: FLT) last month on the belief that domestic travel markets may recover sooner than expected.

This is the result of Australia’s low coronavirus infection rate following successful lockdowns and social distancing initiatives.

Given how both Webjet and Flight Centre are burning through cash at the moment, this is a big positive. Particularly for Webjet’s B2C business which is mainly exposed to the domestic travel market.

Also getting investors excited was the prospect of a COVID-19 vaccine being developed in the coming months.

In the middle of May, American biotechnology company Moderna released phase one trial results for its vaccine candidate, mRNA-1273.

These results were very promising and Moderna is now racing to get a phase 3 trial undertaken in July. If everything goes to plan, we could have a vaccine before the end of the year.

Once again, this would be far sooner than anyone expected and could be the key to opening up international borders. This would be another big positive for Webjet and the rest of the industry.

Is it too late to buy Webjet shares?

Unfortunately, I think it is far too late to be buying Webjet shares now. While the company may come out of the pandemic in a stronger market position, I think this is already reflected in its share price.

Furthermore, it is worth remembering that shareholders have been diluted materially by its recent capital raising. This means that although they have fallen materially this year, its shares are not as cheap as you might first think.

In FY 2019 Webjet delivered a net profit of $60.3 million. With its market capitalisation now at $1.4 billion, this means Webjet’s shares are changing hands at 23x FY 2019 earnings.

However, I’m not convinced Webjet will achieve another profit of that level again until maybe as late as FY 2023.

As a result, I think its shares are very expensive at 23x estimated FY 2023 earnings and feel better value options are available elsewhere.

More reading

• These were the best performing ASX 200 shares in May
• ASX retail shares best placed to benefit from wall of industry bankruptcies
• Why ASX 200 travel shares are soaring higher today
• ASX 200 rallies hard, no longer in bear territory
• Latest spending data could drive the ASX retail sector higher

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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