The Webjet Ltd (ASX: WEB) share price has done remarkably well over the last year, rising by around 30%. The ASX travel share has benefited from a strong recovery of travel demand.
However, it could be an opportunistic time to buy after a decent fall since 28 May 2023, as we can see on the chart below.
Strong demand continues
Less than two months ago, the travel business released its FY23 result.
The FY23 second-half group bookings, total transaction value (TTV), revenue, and earnings before interest, tax, depreciation and amortisation (EBITDA) were "all ahead of pre-pandemic levels driven by WebBeds".
Webjet's managing director John Guscic said about the start to FY24:
We have seen a strong start to FY24. For the first seven weeks of trading, WebBeds Bookings and TTV are more than 35% and 40% higher respectively than for the same period last year. Webjet OTA is also delivering a solid performance with Bookings and TTV up more than 10% and 30% on the prior year. GoSee's Bookings and TTV are up more than 15% and 5%.
TTV is a key driver of revenue, and revenue is a very important element of the company's profitability, which then helps the Webjet share price. Things are looking good at the moment for FY24.
I like the operating leverage
With the nature of Webjet's digital business, it is able to achieve growing profit margins if revenue increases.
As Webjet's revenue recovers from the COVID-19 hit, it's able to demonstrate even stronger profit growth. WebBeds in particular is showing much higher levels of profitability than before COVID-19. The company has done considerable work to lower its costs and increase its operating leverage. I think this is a key factor as to why the Webjet share price could keep rising in the medium term — as long as there isn't a widespread bear market for stocks.
For the whole of FY23, WebBeds saw EBITDA of $117.1 million, which was 22% ahead of pre-pandemic levels, with second-half EBITDA being 130% ahead of pre-pandemic levels. The WebBeds FY23 EBITDA margin was 49.5%, and it could go even higher in FY24.
The Webjet online travel agency (OTA) EBITDA margin was 40.3%, which is good considering volumes rose throughout the year. With international travel increasing to pre-COVID levels, there is still more volume and operating leverage to flow through.
Attractive long-term valuation for the Webjet share price
Considering the global growth and leverage potential of WebBeds, I think the current Webjet share price is attractive. It's currently valued at around 22x FY24's estimated earnings.
If TTV and profit can continue to grow over the next few years, then I believe Webjet shares will be able to outperform the S&P/ASX 200 Index (ASX: XJO).
