Shares in online travel bookings company Webjet Limited (ASX: WEB) are up 9.7% today and 260% over the past two years as the group continues to surprise the market with its rocket-powered evolution.
Just a couple of years ago the company traded on a price-to-earnings multiple around 15 as investors dismissed it as an anachronistic business facing existential threats from consumer-facing U.S. giants like Expedia, Trip Advisor and other larger rivals like Flight Centre Travel Group Ltd (ASX: FLT).
However, much of the analyst coverage of the business was missing the growth potential of its business-to-business (B2B) global travel middle-men like Sunhotels, Lots of Hotels and the recently sold Zuji.
These businesses allow for the digital provision of hotel rooms to travel agencies and the sites' success means Webjet's EBITDA for B2B operations is expected to roughly triple to $11 million in FY17.
The group also yesterday announced a promising strategic agreement with a prominent Chinese travel group named Dida to promote Webjet's growth plans for its new B2B Asia-focused travel business named FIT Ruums.
Going higher?
Webjet is now forecasting that its B2B segment could deliver a 30%+ compound annual growth rate (CAGR) over the next five years. This is why the market has re-rated the stock from an ex-growth multiple around 13 to a fruity 26x estimated forward earnings.
The group is also forecasting a 5-year CAGR target of 10%+ for its larger consumer-facing businesses where bookings are reportedly outperforming the market by 4x.
Webjet's online only business model is evidently not harming it in the fight against Flight Centre, which has issued multiple profit warnings recently and in the process blamed soft consumer sentiment in Australia and falling airfares.
My back of an envelope calculations based on Webjet's EBITDA CAGR targets suggest it could double EBITDA over the next five years to around $160 million. At the end of the day share prices follow earnings higher or lower and if Webjet is able to deliver on its targets, I expect its share price could defy gravity to double again over the next 3-5 years.
