A number of S&P/ASX 200 Index (ASX: XJO) growth shares have dropped in recent weeks. The Webjet Ltd (ASX: WEB) share price hasn't escaped – the ASX travel share has fallen around 18% since the end of July 2023 as we can see on the chart below.
![](https://www.fool.com.au/wp-content/uploads/2023/10/image-83-663x311.png)
The business went through a lot of pain in the first couple of years of the COVID-19 pandemic, but it's now firing on all cylinders. Despite that, it seems to be losing investor confidence. For that reason, I think it's a good time to look at the ASX 200 growth share and I believe it's a buy for three key reasons.
Strong demand
The latest update from Webjet revealed ongoing strong conditions for the travel sector. For Webjet, a key factor for profitability is how much volume the business is processing, which can be measured by the total transaction value (TTV) – that's the value of the booking which then drives the company's revenue and so on.
Webjet gave an update at its AGM regarding the FY24 outlook.
As of 27 August 2023, it said that WebBeds total transaction value (TTV) was up more than 30% (and up more than 40% in Australian dollar terms). Webjet.com.au, the online travel agency (OTA) business, had seen TTV growth of 20% and bookings were up 5%, while GoSee TTV was flat and bookings were up more than 10%.
The ASX travel share says that it has gained significant market share since the start of COVID-19 and there's still room to grow with international travel as airline capacity returns to normal and because there are fewer competitors in the market.
The FY24 first half result will be announced on 22 November 2023, so we'll see how the company's demand is going.
Improving margins
Growing TTV is one thing, but profit can grow at a faster rate if profit margins are improving, which is what I want to see from an ASX 200 growth share. Scale benefits can help with a digital platform business model like Webjet's, but it has also done a lot of work during COVID-19 to improve its cost structure and operating leverage.
Webjet says that WebBeds – its business-to-business (B2B) offering – is now 50% more efficient on a booking per full-time employee basis.
In FY23, the WebBeds business achieved an earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 49.5%, compared to the pre-pandemic EBITDA margin of 42.4%. With FY24 TTV even higher, I think there's a very good chance that the WebBeds (and Webjet) EBITDA margin can rise.
The Webjet OTA EBITDA margin could exceed the pre-pandemic margin thanks to a return of international travel to full capacity and its work on cost improvements.
Attractive price/earnings ratio
After the fall of the Webjet share price over the last few months, the price/earnings (P/E) ratio is now much better.
With the ASX travel share now almost a fifth cheaper than it used to be, it's trading at less than 22 times FY24's estimated earnings, according to the estimate on Commsec. It's predicted to grow profit by over 26% in FY25, putting it at 17 times FY25's estimated earnings.