3 reasons why Flight Centre Travel Group is a standout stock

Share price dip may be an opportunity for savvy investors

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Travel agent Flight Centre Travel Group (ASX: FLT) has seen its share price slip by around 10% since hitting an all-time high of $55.72.

Some investors may look at the current share price of just over $50 and judge it expensive, without looking much further. Others may wonder how a bricks-and-mortar travel agent has managed to continue competing against purely online travel booking companies, such as Webjet Limited (ASX: WEB), Helloworld Ltd (ASX: HLO) –ex-Jetset Travelworld, and Wotif.com Holdings Limited (ASX: WTF).

Here are three reasons why they could be wrong…

1)      When you consider that Flight Centre has delivered average shareholder returns of more than 50% a year over the past five years, a prospective P/E ratio of just 17 times earnings in the 2015 financial year suggests the company is cheap at current prices.

2)      A growing portion of company's earnings are derived from offshore, including China, India, the United Kingdom, South Africa and Dubai amongst others. The USA is growing revenues at a fast pace, but is not yet profitable. That could be expected to change in the near future.

3)      Flight Centre holds $1 billion in cash and growing fast, with around $600 million of that in customers' funds (prepaid for travel), giving the company a ready float that it can earn investment income on – for free.

Add in the prospect of a lower Australian dollar, which would boost offshore earnings, compound earnings per share growth of 12% over the past five years, low levels of debt and excellent management with a significant stake in the business, and Foolish investors might want to take advantage of the recent pullback in share price.

My family owns shares in Flight Centre, and I may take the opportunity to top up my holdings (once Motley Fool trading policy allows). But if you'd like another great investing idea, take a look at this.

Motley Fool writer/analyst Mike King owns shares in Flight Centre. You can follow Mike on Twitter @TMFKinga

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »