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Why the Corporate Travel Management Ltd share price is going gangbusters

Credit: Jaan

Shares in Corporate Travel Management (ASX: CTD) are up 1,093% over the past five years to mean it is the best-performing member of the S&P/ASX 200 (Index: ^AJXO) (ASX: XJO) index of leading companies over the period.

Corporate Travel has even crushed the performance of the much hyped pizza delivery business and fellow digital retailer of sorts in Domino’s Pizza Enterprises Ltd (ASX: DMP).

Below is a comparative chart of the two companies’ performance over the last five years.

 Chart: Share price performance of Corporate Travel v Domino’s Pizza over past 5 years (Source: Google Finance).

Corporate Travel’s rise is a textbook example of why investors should often avoid over-hyped and over-valued stocks such as Domino’s Pizza to focus on fast growers that actually trade on reasonable valuations, relative to their growth rates and outlooks.

Corporate Travel for example is set to post a statutory earnings per share (EPS) compound annual growth rate (CAGR) of greater than 30%, yet has commonly traded on earnings multiples around 30 over the past years.

This means it has traded on a price-to-earnings growth (PEG) ratio around 1, which shows it represented good value according to common valuation metrics for growth stocks.

Investors who recognized this over the past five years will be sitting on blockbuster gains today, but when it comes to investing it’s the next five years that counts.

Outlook

In a presentation to analysts today, Corporate Travel’s management reconfirmed that it expects to post full year EBITDA (operating income) of greater than $97 million, which would be a minimum of 40.6% up on FY 2016.

Evidently the business will find it harder to maintain these sorts of EBITDA growth rates as it builds scale and cycles off a larger base, but there are many signs that point to a strong FY 2018.

The company has repeatedly noted that it “continues to win market share at an accelerating in 2HFY17” and that it expects “good momentum into FY18”.

As the company also notes demand for corporate travel is always leveraged to global economic conditions particularly in the world’s largest markets like the U.S. and Europe that are now exhibiting signs of growing economic strength.

Anyone who has ever worked at a company where staff regularly travel will know that in times of feeble economic growth, or poor business performance, corporate travel is one of the first costs to be cut back on.

However, when things are ticking along nicely demand for corporate travel services naturally increases as budgets and business horizons expand.

Just today the U.S. Federal Reserve lifted lending rates again in a sign that the world’s largest economy should enjoy a strong period over the travel group’s FY 2018.

Although Corporate Travel’s earnings growth rates will find it hard to keep up with the previous years of explosive growth, I expect it could deliver another strong year of growth in FY 2018 to justify today’s valuation of $23.64 per share.

In fact shorting Corporate Travel shares (or betting on them falling) over the last few years has proven a one-way ticket to Centrelink for traders and given the culture of sales-driven organic growth that aligns the financial interests of the staff and company together I expect this stock could head higher over time.

If you're worried you've missed the boat on Corporate Travel, that's ok, because there's a very cheap looking dividend machine that I expect will be right up every value investor's street!

And I'm not kidding!

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Motley Fool contributor Tom Richardson owns shares of Corporate Travel Management Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of Corporate Travel Management Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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