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Are Webjet Limited shares in the buy zone?

Over the last 12 months the Webjet Limited (ASX: WEB) share price has underperformed the market and many of its peers. During this time Webjet’s shares are down 2.5%.

This compares to a 4% gain by the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) and gains of 14% and 65%, respectively, by Corporate Travel Management Ltd (ASX: CTD) and Flight Centre Travel Group Ltd (ASX: FLT).

Whilst this is clearly disappointing, I believe that Webjet could soon play catch up with its peers, making it a great option for investors today.

Earlier this year Webjet provided full year guidance for EBITDA of more than $80 million. This will be an increase of 28% on the $62.5 million it delivered in FY 2017.

Furthermore, management reiterated its medium term booking growth targets for each of its segments.

Webjet is targeting B2C bookings growth at more than 3 times the underlying market growth rate and B2B bookings growth of more than 5 times the underlying market growth rate. Pleasingly, it is tracking ahead of both targets at this point and shows no signs of slowing.

As bookings are a key driver of growth, I believe this highlights how rosy the medium term outlook is for the company. Especially at a time when more and more bookings are being made online instead of in person at travel agents.

In light of this positive outlook, I think Webjet deserves to trade at a premium to the market average and that 29x estimated full year earnings is a fair price to pay.

Because of this, it would have to be my number one pick in the travel industry right now and a share that I think would reward buy and hold investors handsomely in the future.

Though, as always, it is worth remembering that growth shares do carry higher than average risk. So my advice would be to include it in a balanced portfolio.

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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 Corporate Travel Management Limited and 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 Scott Phillips.

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