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Why I think Webjet Limited shares are a buy

Over the last 12 months the Webjet Limited (ASX: WEB) share price performance has been a big disappointment.

During this time its share price has fallen 8% compared to a 7.3% gain by the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).

The key reason behind its underperformance was the earnings guidance it gave to the market in November. The market had been expecting earnings before interest, tax, depreciation, and amortisation (EBITDA) in FY 2018 to be greater than the $80 million management guided to.

This conservative guidance led to a sell-off of its shares and unsurprisingly a broker downgrade by leading investment bank Morgan Stanley.

Another concern that has weighed heavily on the company’s shares was the performance of its business-to-business (B2B) segment. But management has now addressed this by restructuring its WebBeds business segment.

I have confidence that the restructure will be a success and will put the company in a great position to grow its share of the US$50 billion per annum market. Especially considering the highly fragmented nature of the B2B market and how there are few global players competing with the company.

If the restructure is a success it would complement the strong growth that continues to be delivered by its business-to-consumer (B2C) segment and its Webjet.com.au business in particular. As of the end of FY 2017, the Webjet.com.au business was outperforming the market by more than 6x with domestic bookings growth of 11.3% and international bookings growth of 20.7%.

Looking ahead.

Management is targeting annual B2C bookings growth of over 3x the market average and annual B2B bookings growth over 5x the market average over the next three years.

Overall, I believe the strength of its online brands, the restructure of its WebBeds business, and the shift to online bookings could lead to Webjet outperforming these targets, putting its shares in a position to outperform.

In light of this, I would class Webjet as a buy and would suggest investors choose it ahead of industry peer Flight Centre Travel Group Ltd (ASX: FLT) which I feel is fully valued at present.

As well as Webjet, I think these exciting growth shares are in the buy zone today.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited. The Motley Fool Australia has recommended Webjet 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 Bruce Jackson.

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