How do you value the Webjet (ASX:WEB) share price?

What are the company's shares really worth?

The Webjet Limited (ASX: WEB) share price has been on the move during 2021, reaching near 52-week highs last week. This comes despite the online travel agent facing severe trading disruptions caused by COVID-19.

Nonetheless, investors appear to have mixed feelings about the value of Webjet shares in the current climate.

At Friday's market close, Webjet shares finished up 3.66% to $5.95.

A young woman makes an online travel booking as she sits on some steps with her suitcase next to her.

Image source: Getty Images

How do you value Webjet shares?

The most common way to value an ASX share is to calculate the company's price-to-earnings (P/E) ratio. Traditionally, this metric is used to provide more clarity if a company is overvalued or undervalued.

A P/E ratio can be broken down as the relationship between a company's share price and its earnings per share (EPS).

Currently, Webjet has a negative P/E ratio of 4.66. The formula to work out the P/E ratio is the current share price divided by EPS.

Essentially, this means that the company is losing money and is not making any profit over the last 12 months.

Government-mandated lockdowns and restrictions on international and domestic travel have significantly weighed on the company's revenue streams. As such, Webjet continues to operate in hibernation to preserve cash and ensure its survival post-pandemic.

Fortunately, Webjet still has substantial cash reserves to survive the ongoing crisis that has put the travel industry in a tailspin.

In its FY21 results released on 19 May, the company had a strong capital position at hand. Pro forma cash stood at $431 million, with an average cash burn rate of around $5.5 million per month. This allows the company to weather the unpredictable nature of COVID-19 for the next 6.5 years without raising additional capital.

However, a trading update released last Tuesday revealed that Webjet will become cash-flow positive for the first half of FY22. This excludes investing and debt repayments.

In addition, the company highlighted that its WebBeds business has been profitable since July 2021. A positive sign that recovery is not far off, particularly given Australia's accelerated vaccination program.

Of course, macroeconomics will always play a part in the company's share price. With Webjet shares down 40% from pre-pandemic levels, you could argue the company still has some runway left.

All eyes will be on Webjet's H1 FY22 results, which will be released on 25 November 2021.

Webjet share price snapshot

Over the last 12 months, Webjet shares have accelerated almost 60% since hitting near COVID-19 lows.

Currently, the company's share price is around the upper end of its 52-week range of $3.44 to $6.33.

Based on valuation grounds, Webjet has a market capitalisation of around $2.25 billion, with approximately 379 million shares on issue.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. 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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