ASX travel share Webjet Group Ltd (ASX: WJL) is currently trading at 77.5 cents, following the stock's decline of around 18% since 5 December 2024. I think now could be the right time to get on board with the online travel agent (OTA) business.
The company's market capitalisation is around $304 million, firmly making it a small-cap. However, I think this valuation underestimates the company's potential profit growth over the next few years.
Yes, the last couple of years have been challenging due to the high cost of living caused by elevated inflation. But, I believe this headwind has been more than priced in, and now I see a potential share price recovery if conditions improve.
Let's get into why I think Webjet Group is a bargain right now.
Numerous initiatives to grow scale and market share
The ASX small-cap stock is doing a number of things to help grow its business.
For example, on the customer acquisition side of things, it's reducing acquisition costs using 'owned media' channels (such as social media and its content) and it's targeting affiliates to extend the reach of GoSee, a vehicle hire business.
Webjet is aiming to grow its international market share by using technology enhancements and Trip Ninja (trip-planning software). The business is also looking to revitalise GoSee's market share in international markets.
Another initiative is that Webjet is looking to automate and simplify its customer service while continuing to invest in innovation and tech development of its platforms.
Its efforts seem to be working because international bookings on Webjet are growing, and it's also increasing sales of higher-margin ancillary services.
Profit to rebound in FY26?
Webjet has said it expects FY25 underlying operating profit (EBITDA) to be "broadly in line" with FY24.
More excitingly, the ASX small-cap stock believes it is "well positioned to accelerate growth in FY26 and beyond."
I think a rebound could happen in FY26 for Webjet shares with a likely RBA rate cut getting close. This could give Aussies more budget headroom, which could then be partly spent on travel.
Given that Webjet's offering is largely digital, its ongoing investment in improving Trip Ninja is very promising. The company's focus on client satisfaction could also help with increasing customer engagement and retention.
Broker Goldman Sachs currently estimates that Webjet could make $149.4 million in revenue, $45.5 million of operating profit (EBITDA) and 7 cents of earnings per share (EPS) in FY26. That means the stock is currently trading at around 11x FY27's estimated earnings.
The broker also thinks Webjet shares are a buy, with potential upside of more than 30% in the next 12 months. Because revenue growth turned positive in the first six to seven weeks of the second half of FY25, the broker sees further room for higher margin international and ancillary service growth and also likes the "decisive GoSee strategy pivot" with $4 million of annualised cost savings.
