The Webjet Limited (ASX: WEB) share price was on fire on Tuesday and rocketed materially higher.
The online travel agent's shares jumped over 11% to finish the day at $4.10.
Despite this strong gain, the Webjet share price is still down over 57% since the start of the year.
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Does this make Webjet shares a bargain buy?
Unfortunately, at the current level I think Webjet is far from a bargain buy. In fact, I believe it shares are very expensive despite their significant decline.
At the start of the year when nobody had heard of COVID-19, Webjet's market capitalisation stood at just under $1.775 billion.
A market capitalisation is essentially the value of the company. It represents the total number of shares on issue multiplied by the share price of the time. At that point Webjet had a total of ~135.6 million shares outstanding and a share price of $13.10.
How much do you think Webjet's market capitalisation is today?
Given that its share price is down 68.7% since the start of the year, you might expect that its market capitalisation would be down by the same amount to $555 million. But it isn't.
Webjet actually has a market capitalisation of approximately $1.4 billion.
Yes, you read that correctly. Despite the tourism industry grinding to a halt during the pandemic and the next year or two looking incredibly uncertain, investors have only marked down Webjet's shares by 21%.
How is this possible? This appears to have been caused by investors not taking into account Webjet's highly dilutive capital raising.
This capital raising means there are now a total of ~339 million shares outstanding. Which, when multiplied by the current share price, equates to a market capitalisation of $1.4 billion and not $555 million.
Short interest building.
In light of this, I can't say I'm surprised that short sellers have begun to target Webjet. Short sellers are investors that profit when a share price declines.
On Monday, Webjet had 9.2% of its shares held short, making it one of the 10 most shorted shares on the ASX.
In light of the above, although I am a big fan of Webjet and its brands, I think it is a very risky share to own at the current level.
