The Webjet Limited (ASX: WEB) share price is out of form again on Monday and dropping lower. At one stage today the online travel agent's shares tumbled 11% to a multi-year low of $2.41.
When its shares hit that level, it meant they had lost 86% of their value since peaking at a 52-week high of $17.19.
Webjet's fall from grace.
Webjet's fall from grace over the last few weeks has been incredibly disappointing. But it is worth remembering that it was completely out of the hands of the company and its management team.
In fact, had the coronavirus outbreak never occurred, I suspect its shares could have been trading close to record highs. Especially considering the strong growth that was being exhibited by its WebBeds business and speculation that private equity firms were interested in acquiring the company.
Those private equity firms must be mighty relieved that no deal was struck earlier this year. That would have been a quick way to lose a billion dollars or so of value.
Is Webjet a bargain buy?
Given how hard Webjet's shares have fallen and looking at its trailing PE ratio, it would be easy to come to the conclusion that they must be bargain buys now. However, it isn't unfortunately as simple as that.
Last week Webjet returned from its trading halt after raising $231 million from institutional investors at a price of $1.70 per new share. It is now pushing ahead with a retail entitlement offer at the same price. Combined, Webjet expects to raise a total of $346 million.
Based on this, Webjet will end up with an additional ~203.5 million shares on its registry. This compares to the 135.65 million shares outstanding previously and will bring the total number of shares to just over 339.15 million.
Why is this important? This is important because when you value a company with its PE ratio, you first need to find the "E". To do this we take the company's net profit and then divide it by the total shares outstanding to give us its earnings per share.
Based on Webjet's FY 2019 net profit of $62.3 million, we get earnings per share of 18.4 cents. This means that although Webjet's shares are trading at a multi-year low, the dilution caused by the equity raising means that its shares are changing hands at 13x FY 2019 earnings.
Whilst this is still cheaper than your average ASX share, there is a lot of uncertainty in relation to the duration and severity of the coronavirus outbreak. It is very likely that its earnings will go backwards for the next couple of years as it battles with the tough trading conditions.
Foolish takeaway.
Overall, I'm optimistic that Webjet will come out of this in a much stronger position and its WebBeds business will return to its former glory.
However, it could be FY 2022 or even later until its earnings rebound to previous levels. In light of this, I wouldn't rush in to buy Webjet or Flight Centre Travel Group Ltd (ASX: FLT) shares just yet.
