The S&P/ASX 200 Index (ASX: XJO) has started the week off in sensational form. In afternoon trade the benchmark index is up 1.2%.
While the majority of shares on the index are pushing higher, none have pushed as hard as the Webjet Limited (ASX: WEB) share price on Monday.
The online travel agent’s shares were up as much as 25.5% to $3.68 this morning. When its shares hit that level, they had gained an impressive 36% over the last two trading days.
Why is the Webjet share price rocketing higher?
Investors have been buying Webjet and fellow travel agent Flight Centre Travel Group Ltd (ASX: FLT) (up 9% today) following the announcement of the Federal Government’s 3-step plan to reopening Australia.
While step one will have a small benefit to travel agents, as intra-state travel is being encouraged in some states, the third step is the one which could give them the biggest short term boost.
If Australia avoids a spike in infection rates as restrictions ease, state governments look set to push ahead with the second step in June and then the third step in July.
That third step is likely to include the opening of borders to allow interstate travel once again, which would be a major boost to the local tourism industry.
In addition to this, there’s the potential for a trans-Tasman travel bubble being opened up later this year allowing travel between Australia and New Zealand. This would be another much needed boost for Webjet and its industry peers.
But whether this level of travel will be enough to make Webjet’s operations profitable in the near term is difficult to say. Though, with the company recently raising $346 million via an equity raising and reducing its costs down materially, it looks well-positioned to come out of the crisis in a strong position.
Should you invest?
While I think things are looking a lot more positive for Webjet, I feel its shares are deceptively expensive at this point and wouldn’t be in a rush to invest.
Based on FY 2019’s net profit of $60.3 million, Webjet’s shares are changing hands at 20x earnings.
I’m not overly confident Webjet will deliver a profit of that level again until FY 2023. Which begs the question, do you want to pay 20x FY 2023 earnings for Webjet’s shares? I think better value options are available elsewhere on the market.
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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 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.