As you can see from the chart below, November was a great month for ASX travel shares and others in recovery sectors, but Flight Centre and Webjet shares have pulled back slightly since the start of December.
What’s caused the recent pullback?
I could attempt to narrow it down to a couple of things.
Firstly, it’s extremely common for the market to overreact to new pieces of information. In this case, I’m talking about the initial vaccine announcement at the start of November which sent these shares flying upwards.
I’m as optimistic as anyone towards an economic recovery, but some of the enthusiasm might’ve been slightly premature as a few of these companies might have a fair way to go from here, despite promising global vaccine distribution.
Back home in Australia, a new COVID-19 cluster was confirmed in Sydney’s Northern Beaches with 15 new cases confirmed yesterday. It’s unknown at this point how domestic borders will be affected and if this will have an impact on some of these ASX travel shares.
Some better news
At the start of this week, it was announced that New Zealand Prime Minister Jacinda Ardern plans to create a quarantine free travel bubble between Australia and New Zealand by March 2021.
This is great news, and should hopefully reduce the monthly cash burn of Flight Centre and Webjet until international borders are gradually opened up. While this date isn’t confirmed, midway through next year seems to be the consensus among many, although no one knows for sure at this stage.
Are FLT & WEB shares a buy today?
I’ve said this many times and I’m happy to say it again. I think both of these companies are likely to make strong recoveries in the long-run and would both make sound bottom-drawer investments.
However, while the vaccine distribution overseas looks promising, without knowing when Australians will have access to a safe vaccine, there’s still a lot of guesswork in the valuation of these shares.
One important aspect to also consider is how raising capital has diluted the shares on issue for these companies. The market capitalisation of Webjet is actually close to what it was prior to COVID-19, despite the share price still trading at a large discount.
If you’d like to learn about this in a bit more detail, check out my article: Time to buy Webjet or Flight Centre shares? Read this first.
As I mentioned earlier, there’s nothing wrong with having a bottom drawer investment.
I just personally would try to find value in other areas that might have some more upside in the shorter-term. This isn’t a criticism of either of these companies, just to be clear.
For some more share ideas, click here to read: 3 ASX share ideas for your 2021 watchlist.