Is the Webjet Limited (ASX: WEB) share price a buy? Investors certainly thought so yesterday when it jumped around 20%.
A bit of the gloss has been taken off as Webjet has fallen back a bit this morning, but it's still up significantly this week.
In-fact, the last few weeks have been very good for the Webjet share price, it's gone up 49% since 22 April 2020.
So what next for Webjet? It hasn't really said much since the capital raising at the start of April 2020. The company raised around $350 million which is being used to strengthen the balance sheet due to the travel restrictions that are in place globally due to the coronavirus.
The capital raising proceeds are expected to be sufficient to provide for the operating costs and capital expenditure through to the end of 2020 even if severe travel restrictions continue. Despite being cashed up, Webjet is working on cost reductions where it can.
What's the bull case for the Webjet share price?
I think there are two key points why the Webjet share price could continue to be a good performer over the rest of 2020.
The first is that the restrictions are lifting much earlier than expected. Whilst normal travel isn't on the agenda yet, particularly international travel, the possibility of domestic travel has been brought forward with other restrictions ending. I think that's very promising that bookings could start again sooner rather than later.
I believe the second point to consider is how Webjet delivers its service. It's an online-only offering. It doesn't rely on a large physical network of travel agent stores to sell services. The online model means it has lower costs and can offer a cheaper service than many of its competitors. This might be very important for cost conscious customers. Webjet's global earnings and product lines may mean it can perform well when things start returning to normal.
How much earnings can Webjet generate over the next 12 months? Will it even be profitable? These are obviously important for the Webjet share price. I don't know the answer to those questions, but it now seems very unlikely that going bust is on the cards.
Is it a buy today?
It's unknowable whether there will be a second wave of infections. Are there lots of Aussies wanting to go on a (domestic) holiday as soon as they can?
At this share price, Webjet is still priced cheaply in a scenario where domestic travel rebounds strongly. I think Webjet could be a high-risk, high-reward option today with a multi-year investment time in mind. Restrictions are lifting and that could help Webjet get back to some sort of 'normal'. Although it's not something I'm betting on for my own portfolio (yet).
