The Webjet Limited (ASX: WEB) share price has continued its decline and is dropping lower again on Tuesday.

In morning trade the online travel agent’s shares are down 2% to $2.90.

This latest decline means that Webjet’s shares have now tumbled approximately 40% from their June high.

It also means the company’s shares are now trading within sight of their March low of $2.25.

Why is the Webjet share price sinking lower again?

It appears as though investors have been selling Webjet’s shares over the last few weeks for a couple of reasons.

The first is valuation concerns. Due to the dilution caused by its sizeable capital raising at the height of the pandemic, when Webjet’s shares were closing in on $5.00 in mid-June, its market capitalisation was on a par with pre-pandemic levels.

This was despite its shares trading nearly two-thirds lower than their 52-week high of $14.63.

I suspect that some investors were not initially factoring the dilution into the equation when valuing Webjet’s shares and may have started to sell them once this was better understood.  

In addition to this, the spike in coronavirus cases in Victoria is likely to be weighing heavily on Webjet’s shares.

With Melbourne in lockdown for upwards of six weeks and concerns that the virus could spread elsewhere, the recovery in the domestic travel market could be derailed.

While Webjet appears to have sufficient liquidity to last it until the end of 2021, if the pandemic goes on longer than expected, it could potentially require additional funding next year. This would likely dilute shareholders further.

And even if another capital raising proves unnecessary, the longer this drags on, the less funds the company will have available to make potential acquisitions.

Should you buy Webjet shares?

Despite the recent pullback in the Webjet share price, I’m not in a rush to invest. I would suggest investors keep their powder dry and wait to see how travel markets recover over the next 12 months before considering an investment.

The same applies to rival travel bookers Corporate Travel Management Ltd (ASX: CTD) and Flight Centre Travel Group Ltd (ASX: FLT).

More reading

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• These ASX shares are the winners and losers in the “new normal”
• Why Afterpay, Alumina, Magellan, & Webjet shares are dropping lower

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and 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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I think that if you are going to make serious money on the share market, then you have to find 1 or 2 companies for your portfolio that enjoy rapid growth. These preferably shouldn’t make up a large percentage of your portfolio, but are still important inclusions. 

A ’10-bagger’ is a company that will return 10 times the original investment. In my own investing journey, a few notable 10-bagger successes include Cochlear Limited (ASX: COH), which I bought early, as well as Blackmores Limited (ASX: BKL).

At the moment, my investment into Sezzle Inc (ASX: SZL) has risen by ~140%. However, I have also lost money choosing the wrong shares, so it’s important to understand the risks involved and make sure you don’t take risks you aren’t comfortable with. 

After that caveat, here are 2 shares that I think could be future 10-bagger investments.

Medical 10 baggers

Recce Pharmaceuticals Ltd (ASX: RCE) (pronounced “recky”) saw its share price rise by 54% on 9 July, after it announced two of its products had been selected for a CSIRO trial into antiviral treatments for COVID-19.

However, this is a side issue for the company. Recce is developing a new type of synthetic antibiotic, targeting the emergence of superbugs. The company is focused on dealing with sepsis or blood poisoning, which is a life threatening reaction the body has to infection.

According to the medical journal The Lancet, sepsis killed 11 million people in 195 countries in 2017. Right now, sepsis remains an unmet challenge.

I think this company could be a 10-bagger, because the FDA has already awarded the company’s product, RECCE® 327, fast track designation, plus 10 years of market exclusivity, post approval. Also, in my opinion the company’s products are world changing in a very real sense.

Corporate communications

Whispir Ltd (ASX: WSP) is a potential 10-bagger share that I am watching very closely. The company offers a cloud-based communications workflow platform to its clients, facilitating automatised interactions between businesses and people. Although it has been operating for a long time, the company only listed recently. Like Recce, Whispir is not currently profitable. 

However, as a software-as-a-service company (SaaS), it has a few characteristics which I find interesting. First, it uses a subscription business model. This means much of its revenue, greater than 95% in this case, come from recurring revenue. Second, like all SaaS companies, it has a high operating margin – in Whispir’s case, that’s 62%. 

Also, the company appears to be focusing on the right metrics. It has seen its gross revenue rise by 20% in H1 FY20 versus H1 FY19. In addition, it has been able to increase its annual recurring revenue per customer by 17% versus H1 FY19.

Finally, as evidenced by the company’s H1 FY20 presentation, the list of Whispir’s clients is both long and diverse. This shows that the company’s products are versatile enough to appeal to a broad audience, as well as being a service companies need.

Foolish takeaway

When analysing a company to see if it could be a 10-bagger share, I try to take into account the following criteria. First, does the company address a need for industry or society? Second, do they have a track record of achievement? Are they actually making progress, or just full of hot air and fluff announcements? Third, do they have access to the cash they need to get to profitability?

For me, both of these shares meet this criteria. Good luck!

More reading

• Are these small cap ASX shares future tech stars?
• Why Galaxy, Platinum, Sezzle, & Treasury Wine shares are storming higher
• ASX shares tapping into the US market
• The rise and rise of ASX SaaS shares
• Why I think the Polynovo share price is a buy right now

Daryl Mather owns shares of Sezzle Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. and Whispir Ltd. The Motley Fool Australia owns shares of and has recommended Blackmores Limited. The Motley Fool Australia has recommended Cochlear Ltd., Sezzle Inc, and Whispir Ltd. 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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The Breville Group Ltd (ASX: BRG) share price is bucking the morning sell-off even as fears of a COVID-19 resurgence is forcing investors to retreat.

Shares in the kitchen appliance maker surged 5.1% to $24.15 in morning trade when the S&P/ASX 200 Index (Index:^AXJO) fell 0.6%.

Other consumer-facing stocks are also under pressure today. The Harvey Norman Holdings Limited (ASX: HVN) share price lost 1% to $3.53 while the Wesfarmers Ltd (ASX: WES) share price shed 0.5% to $45.81 at the time of writing.

$10 billion opportunity

A very bullish report from Morgan Stanley may be what’s firing the Breville share price. The broker initiated coverage on the stock with an “overweight” recommendation as it estimates the global serviceable market for Breville stands at $10 billion.

If you are impressed with that number, Morgan Stanley reckons the stock is worth $62 a pop – although you will have to settle for a more modest 12-month price target of $28 a share in the meantime.

Why the Breville share price could surge over $60

The $62 per share valuation is for FY30, and it assumes the group can achieve a 10% compound annual growth rate (CAGR) over the next 10 years.

“This assumes that BRG can capture 33% of the total revenue opportunity, or A$3.1bn at an EBIT [earnings before interest and tax] margin of 16.2%,” said Morgan Stanley.

“We then apply a terminal EBIT multiple of 15.5x, in-line, with BRG’s five-year average.”

Winning market share

Of course, this also assumes Breville can take market share from rivals. This looks likely given its proven track record in North America and Europe.

Further, the amount the group invests in research and development gives it an important edge over the competition. Management has also built a scalable business model that can support rapid growth, added the broker.

What’s more, the coronavirus pandemic is a positive for Breville’s business. Stuck-at-home consumers have been buying kitchen appliances as they have to cook at home more due to the lockdown.

The COVID cooking trend

Even after this medical emergency ends, some experts believe households might still spend more time cooking and baking at home compared to the pre-COVID-19 glory days.

The only thing about buying Breville now is that investors will have to cough up big for the stock, although that doesn’t bother Morgan Stanley much.

“Our A$28 price target implies 38x FY22E EPS [earnings per share], offering a 12% EPS CAGR (FY20-23E),” explained the broker.

“We think that BRG’s premium multiple is sustainable if they can continue their successful execution, given the scarcity of listed global growers in [Australia].

More reading

• Is the Star Entertainment share price a good buy right now?
• 3 top ASX 200 blue chip shares to buy
• 5 things to watch on the ASX 200 on Tuesday
• Why the Appen share price gained 53% in the first half of 2020
• Fund manager warns that ASX bank dividends facing multi-year bad debt hit

Motley Fool contributor Brendon Lau owns shares of Breville Group Ltd. The Motley Fool Australia owns shares of Wesfarmers 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Tesla (NASDAQ: TSLA) is among 2020’s hottest stocks. As of market close on Monday, the electric-car maker’s shares are up more than 250% year to date. Meanwhile, the S&P 500 is down 2%. The stock’s rise reflects investors’ growing confidence in the company’s long-term prospects as Tesla demonstrates impressive execution.

But has the stock got ahead of itself? After all, the stock’s valuation now prices in not only massive business growth, but also significant improvements in profitability in the years to come.

Are shares priced for perfection? Or is there still room for Tesla stock to run?

Valuing Tesla stock

It’s helpful for investors to understand exactly what kind of growth is priced into the stock today.

For Tesla’s market capitalization to rise at an average rate of 10% annually over the next 10 years from its current level, the company would have to have a market cap of about $721 billion 10 years from now. What would it take to command such a high price tag? Tesla would probably need annual net income of around $14 billion to $15 billion. Assuming the company trades at 50 times earnings (a reasonable price-to-earnings ratio if Tesla truly does prove it can grow that fast over the next 10 years), Tesla could command a market cap of about $700 billion to $750 billion in 2030.

What kind of sales growth might it take for profitability to rise to this level? If Tesla can achieve BMW‘s net profit margin of about 5% in 10 years, the company would need sales of about $280 billion to $300 billion by 2030 to achieve net income of about $14 billion to $15 billion, implying an average annual sales growth rate of about 27%.

Are expectations too high?

With Tesla’s revenue having grown much faster than 27% annually over the last five years, the above scenario may sound likely to some investors. But there are some major risks to the assumptions in this model. First and foremost, there’s a chance that profitability proves to be more futile than Tesla shareholders anticipate. In addition, if Tesla’s growth slows significantly toward the end of this 10-year period, investors may not believe the electric-car maker’s stock is worth 50 times earnings at the time; and if the stock commands anything less than a price-to-earnings ratio of 50 in 2030 (on $14 billion to $15 billion of net income), the stock’s return between now and then could be subpar.

Of course, there’s always a chance that Tesla will exceed even investors’ highest expectations. Perhaps, for instance, electric cars become more profitable than gas cars ever were, leading to a much higher net margin than 5%. Further, if Tesla’s software and driver-assist features get significantly better and help the automaker widen its technological lead over competition, the company may be able to earn more money from its vehicle software than the market anticipates.

The spectrum of potential outcomes is enormous. But given the wild growth that is priced into Tesla stock today, investors may want to hope for the stock to fall in order to help lower the risk of investing in a business that may be priced for perfection.

Big catalysts on the horizon

Does this mean current Tesla shareholders should sell their Tesla stock? Not necessarily. In light of the electric-car maker’s strong execution recently, including the launch of a new factory in China in 2019 and the beginning of Model Y deliveries earlier this year, investors may want to continue holding. Of course, this assumes shareholders are willing to endure significant volatility. Following such a huge run for Tesla stock, volatility is almost a given in the coming months.

Tesla’s business may still be early in its growth story. Even in the near term, the automaker’s growth could be significant. The company’s March-launched Model Y, for instance, has the potential to outsell the company’s best-selling car (Model 3). After all, SUVs like the Model Y often outsell sedans in many markets. Further, Tesla is notably planning significant production capacity expansion this year — and it doesn’t plan on slowing down next year.

Later this month, investors will get a timely window into Tesla’s business to see if it is living up to expectations. The electric-car maker reports earnings on July 22.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

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• Short sellers are betting US$20bn against the skyrocketing Tesla share price
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• The most popular US shares that Aussies are buying includes a few surprising names
• Here’s why Tesla stock surged to all-time highs on Tuesday

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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In morning trade the Westpac Banking Corp (ASX: WBC) share price is dropping lower with the rest of the market.

At the time of writing the banking giant’s shares are down 0.5% to $17.87 despite announcing the appointment of a key executive.

What did Westpac announce?

This morning Westpac announced the appointment of its new chief financial officer, subject to regulatory approvals.

This follows the promotion of its previous chief financial officer, Peter King, to the role of chief executive officer in April.

According to the release, Australia’s oldest bank has appointed Michael Rowland as its new chief financial officer.

Mr Rowland replaces acting chief financial officer Gary Thursby and joins from accounting giant KPMG, where he is a Partner in Management Consulting, specialising in financial services.

The company notes that Mr Rowland brings deep experience across the financial services industry, having previously held senior positions at KPMG, ING Australia, and rival Australia and New Zealand Banking GrpLtd (ASX: ANZ).

He was with ANZ from 1999 to 2013 in various roles. This includes the CFO of Institutional Banking, CFO of Wealth, CFO of New Zealand, CFO of Personal Financial Services, and business leadership roles as CEO of Pacific, Managing Director of Mortgages, and General Manager of Transformation.

Mr King commented: “Michael’s experience is broad across both CFO and business leadership roles. His most recent experience in consulting as a senior partner at KPMG also brings valuable external perspectives.”

“In particular, Michael’s expertise in business restructuring, delivering sustainable productivity and revenue programs and in disciplined financial management will be an important contributor to making Westpac a simpler and stronger bank. I’m delighted that Westpac has attracted someone of Michael’s calibre” added the CEO.

Westpac advised that Gary Thursby will remain as the bank’s acting chief financial officer until Mr Rowland joins Westpac later in the year.

More reading

• ASX 200 goes up 1%, big 4 ASX banks rise
• Fund manager warns that ASX bank dividends facing multi-year bad debt hit
• These ASX dividend shares will help you beat low interest rates
• ASX 200 Weekly Wrap: Rocketing BNPL shares fail to stop ASX 200 slide
• 3 top ASX dividend shares to buy instead of Westpac

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. 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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It was a tough start to the week for the Star Entertainment Group Limited (ASX: SGR) share price on Monday.

Shares in the Aussie wagering group closed yesterday’s trade 0.4% lower at $2.69 per share. That came as the S&P/ASX 200 Index (ASX: XJO) jumped 0.98% higher to start the week.

So, is the Star Entertainment share price in the buy zone right now?

What happened on Monday?

There were 2 big ASX announcements from the Aussie wagering group in Monday’s trade.

The first was the Queensland Government’s decision to end negotiations for a second casino license on the Gold Coast. That’s good news for Star Entertainment and its share price going forward.

The Aussie wagering group owns and operates The Star Sydney and Gold Coast as well as the Treasury Casino and Hotel Brisbane. The government’s decision leaves Star as the sole casino operator on the Gold Coast.

It also means one less headache for management to consider amongst earnings threats, for now.

However, it wasn’t all good news on Monday. While investors were bullish in the morning session, the Star Entertainment share price eventually fell 7.3% from mid-morning after the group reported a coronavirus breach at its Sydney venue.

The wagering group reported a patron who visited The Star Sydney on 4 July. This comes despite the casino’s ‘COVID-Safe Plan’ as part of its restricted re-opening on 1 June.

It was subsequently reported that Star would be fined $5,000 by Liquor & Gambling NSW for breaching public health protocols.

What does this mean for the Star Entertainment share price?

Investors sold out of the wagering share on Monday, but it’s always tough to react to conflicting pieces of news.

Clearly, a COVID-19 breach is not a good thing for the company’s re-opening plans. That creates a lot of uncertainty including a potential hit to earnings and short-term operations.

However, it’s also possible that it’s just a short-term impact. Assuming the market is forward-looking, that means investors should have been pricing in the impact of higher potential competition on the Gold Coast.

Of course, there are plenty of headwinds still facing the Aussie wagering industry. Coronavirus restrictions, particularly on international tourism, is not a good sign for the short- to medium-term.

However, now could also be the time to buy and hold at a good price. The Star Entertainment share price is down 41.65% in 2020. For context, rival Crown Resorts Ltd (ASX: CWN) shares are down 24.96% this year.

Foolish takeaway

Personally, I think buying into Star Entertainment would be a speculative play right now.

Just like ASX travel shares, wagering shares are under pressure and facing significant headwinds.

With the Star Entertainment share price trading at a price-to-earnings ratio of 19.9, it’s probably not cheap enough to be in the buy zone just yet, in my view.

More reading

• 3 top ASX 200 blue chip shares to buy
• 5 things to watch on the ASX 200 on Tuesday
• Why the Appen share price gained 53% in the first half of 2020
• ASX 200 goes up 1%, big 4 ASX banks rise
• Why the Star Entertainment share price has been on a rollercoaster today

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Crown Resorts 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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The Altium Limited (ASX: ALU) share price could be on the move on Tuesday after the release of a sales update for FY 2020.

How did Altium perform in FY 2020?

As per its prior updates, Altium fell short of its aspirational revenue target of US$200 million in FY 2020. This was due to the negative impact of the pandemic on its sales performance at the end of the financial year.

According to the release, for the 12 months ended 30 June 2020, the electronic design software company delivered a 10% increase in revenue to US$189 million. This means Altium has now recorded eight consecutive years of double digit revenue growth.

Altium’s solid top line growth was driven by robust performances across core business units and key regions during the challenging COVID-19 environment.

The key Altium Designer platform recorded a 14% increase in new seats sold and a 17% lift in its subscription base to well over 50,000 subscribers.

At the end of the period Altium had a cash balance of over US$90 million. This compares to US$80.5 million a year earlier.

Management commentary.

Altium’s CEO, Aram Mirkazemi, was pleased with the company’s performance in these difficult trading conditions.

He commented: “Altium’s strategy of providing attractive pricing and extended payment terms to support our customers during COVID-19 and to drive volume to support our pursuit of market dominance has been rewarded. Altium achieved strong growth in new Altium Designer seats and record growth in our subscription base to reach well over 50,000 seats on subscription.”

And although the chief executive was disappointed that Altium didn’t achieve its aspirational revenue target, he believes a lot of progress has been made towards future goals.

“While COVID-19 prevented us from reaching our long standing aspirational goal of $200 million in revenue, conditions surrounding COVID-19 have dramatically accelerated our movement towards market dominance and the implementation of our transformative agenda for the industry,” explained Mr Mirkazemi.

This was thanks largely to its launch of the new cloud platform Altium 365, which allows engineers to work from anywhere and connect with anyone. At the end of the period, there were 2,500 companies using Altium 365 and almost 5,000 active users.

Outlook.

No guidance was given for FY 2021. However, the company continues to target 100,000 subscribers and market dominance by 2025.

Further details will be provided with the release of its full year results in August.

Mr Mirkazemi commented: “At our full year results, we will share more color on the long-term impact of COVID-19 on the acceleration of our strategy of market dominance and industry transformation. We will also share color about our recurring revenue and pricing model post COVID-19 and based on the impact of Altium 365.”

More reading

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Altium. The Motley Fool Australia has no position in any of the stocks mentioned. 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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