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7 reasons I’d buy Flight Centre Travel Group Ltd shares

Credit: Roger Schultz

For the record, I already purchased Flight Centre Travel Group Ltd (ASX: FLT) shares for my family’s portfolio back in June, when the market overreacted and shares slid 20% in a week. I picked up a modest bundle at $36.48.

However, despite announcing a 24% profit increase in its most recent full-year, shares have drifted just 6% higher – 4.6% of that gain came from today’s rally!

Here are seven reasons I’d buy more Flight Centre shares:

1. Founder-run. Graham ‘Skroo’ Turner is Flight Centre’s founder and CEO. With over 30 years’ experience in the travel industry and around $405 million of ‘skin in the game’, undoubtedly, he’s the right man for the job.

2. Huge cash balance. Flight Centre is very well capitalised. At 30 June 2015, it had $564.7 million of cash (equivalent to 14% of its current market capitalisation). In addition to keeping my mind at ease, Flight Centre’s growing cash balance can be used for strategic capital management initiatives, such as the two acquisitions it announced over the past fortnight.

3. Internationally diversified. Along with its store count, Flight Centre’s foreign revenue is growing solidly. For example, revenue from the group’s UK business has risen from $145 million in 2010 to $285 million in 2015.

Source: S&P Capital IQ

Source: S&P Capital IQ

4. Market leader. Being a market leader affords companies many perks, such as better prices, defensive revenue, lower costs and scalability. Flight Centre is the leader in Australia’s lucrative leisure travel market.

5. Excellent economics. Good management and products, market-leading status and flexible balance sheets generally culminate in good ‘economics’ — Flight Centre is no different. Despite having tiny amounts of debt (which ordinarily boosts returns – in the good times), Flight Centre’s margins are enviable. Also, they do not appear to be gouging the consumer or becoming complacent in their dominant position.

6. Dividends. Flight Centre shares are expected to pay a dividend equivalent to a yield of 4.05% fully franked (5.8% grossed-up) in the coming 12 months, according to Morningstar. Try getting that from the bank.

Source: S&P Capital IQ

Source: S&P Capital IQ

7. Shares appear cheap. According to my basic discounted cash flow analysis, Flight Centre need not shoot the lights out over the next five years to justify its current share price. In relative terms, shares also appear good value:

Screen Shot 2015-12-22 at 3.20.39 PM

Source: S&P Capital IQ

Foolish takeaway

Flight Centre shares tick the box for many of my investment criteria. Therefore, in my book, they are a buy at today’s prices. Indeed, leading into 2016, it is certainly one company I’ll have at the top of my watch list, and if prices continue to remain depressed I’ll likely add more to my collection.

In my opinion, Flight Centre shares are a good buy today, but The Motley Fool has just issued a brand-new report, complete with all the details on our expert analysts' #1 dividend stock for 2016 - and I think it is a GREAT buy! Simply, click here now for your FREE copy, including the name and code! No credit card details or payment required.

Motley Fool writer/analyst Owen Raszkiewicz has a financial interest in Flight Centre.

Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. 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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