yep agree but those are my price targets based on the current outlook and growth trajectory.
the following factors will drive them higher over the next 2 years:
- interest rates and inflation will remain low so cost of capital is cheap for a high growth company which will drive higher ratio of return on capital : cost of capital
- the longer they continue to execute consistently and achieve high compound eps growth rate with high return on capital, the more they will start to pop up on the filters of institutions/ funds who will look at their strong management team, solid balance sheet, consistent eps growth, market leading position, diversified business model in terms of business segments and geographical spread, long term industry tailwinds in tourism, technology stock tailwinds, market opportunity in b2b which has not been consolidated, etc etc
- its still cheap on peg terms and the longer they execute the higher a p/e premium they will demand (think of how csl, altium etc have had progressively higher p/e’s over recent years as more people jump on the bandwagon and holders continue to hold)
- webjet have not provided clear forward guidance, preferring to describe their growth in terms of an ebitda multiple of the underlying cagr in each of their business segments which are each growing at different rates, thus it is difficult to extrapolate the overall group ebitda growth rate;
- furthermore the complex accounting and delayed agreements with phasing of earnings streams over several years with thomas cook, jac travel etc mean that the exact eps effect of each agreement and acquisition is hard for the market to predict; the end consequence of opaque guidance and a complex growth outlook is usually that the growth ends up being somewhat discounted by the market, but this leads to bigger upgrades if and when they execute;
- the aud is dropping which is a great tailwind for bottom line eps growth; aud is down almost 10% in the past 6-12mo which is a big boost to eps estimates
- technical traders and momentum traders (in addition to funds etc) will look at the beautiful long term chart and see any short term oversold dips as buying opportunities
- the asx is nearing all time highs which will start off another wave of buying
- international markets such as asia and usa have geopolitical trade war worries and europe has brexit/ banking/ italy/ spain/ greece / eu stability issues and japan has had a good run, so a market such as australia would be starting to look attractive
- as market cap grows then etf’s that track indexes eg asx200 will be forced to buy more
- its essentially an aussie version of a faang stock along with altium, wisetech, appen, etc so they are on a strong run
- the biggest sectors at risk of a downturn in my mind are the banks due to property market/ household debt risk and mining related companies due to their very nature as price takers on international commodities and the progressive effect of capacity expansion during the upswing of a commodity cycle; thus funds and retail investors will be looking to rotate into stocks exposed to sectors with a more favourable outlook if either mining/ banking starts to falter in terms of their outlook/ dividends.
i could go on, but overall i still see webjet in a sweetspot due to significant further upside in the valuation if eps grows according to forecasts, favourable economic/ rate/ exchange rate/ inflation environment, favourable industry tailwinds, favourable market sector, favourable balance sheet, long runway of future opportunities (not a mature gorwth stock with plateauing growth outlook), good amangement, smallish market cap so room for growing fund/ etf uptake over time, etc etc.
just look at how under-discussed the stock is on hot copper compared to speculative lithium hopefuls in dire african countries to get an idea of how this continues amazingly to fly under the radar compared to altium, appen, afterpay, wisetech, xero and other tech stocks that have had a blistering run.
having said that, it is 14.00+ from being in the $9.50 region a few months ago, so the chart does suggest it needs a breather before the next catalyst which will be the reporting season in august.
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