How do you value the Webjet share price in April 2022?

We check how investors can value the online travel agent’s shares.

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Key points

  • Webjet shares have notched up this year amid a recovery of the travel market
  • For the moment, the online travel agent's shares have a price-to-earnings (P/E) ratio of negative 4.67
  • A negative P/E ratio means the company has become unprofitable over the last 12 months

The Webjet Ltd (ASX: WEB) share price has been gradually treading upwards in recent times. This comes as the online travel agent emerges from hibernation following the steady reopening of the travel industry.

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

At the time of writing, Webjet shares are exchanging hands at $5.89, down 0.17%.

How do you value the 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 as to whether 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 4.67. The formula to work out the P/E ratio is the current share price divided by EPS.

Essentially, this means that the company has become unprofitable when adding up the earnings for the past four fiscal quarters.

Government-mandated lockdowns, as well as restrictions on international and domestic travel, have significantly weighed on the company’s revenue streams.

However, after two years of the company laying dormant, borders are now opening up as travel momentum builds.

In Webjet’s first-half results, released in November, management highlighted a much-improved performance since the COVID-19 ravaged years.

Management reported a cash surplus of $3.5 million per month, a significant turnaround compared to FY21. Severe lockdowns led the company to record an average monthly cash burn of $5.5 million in the previous financial year.

Net profit after tax (NPAT) stood at a loss of $61.8 million for the first half compared to the $132.2 million loss in the prior corresponding period.

Webjet noted that TTV could reach pre-COVID levels by the second half of FY23. The group portfolio will be a much leaner business, having trimmed 20% of operating costs.

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

All eyes will be on Webjet’s full-year results which will be released late next month.

Webjet share price snapshot

Over the last 12 months, Webjet shares have travelled 15% higher as the travel industry begins to recover.

Most of these gains, however, have come year to date, up 14%.

Based on valuation grounds, Webjet has a market capitalisation of around $2.24 billion.

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 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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