A bargain hunter’s guide to Flight Centre Travel Group Ltd

Following the disappointing news that Qantas Airways Limited (ASX: QAN) has said it is expecting weak demand for domestic services, it is unsurprising to learn that a number of shares related to the travel and tourism industry have taken a tumble today.

Qantas Airways has blamed the downward revision on its planned capacity additions due to softness in demand brought on by the upcoming federal election and drops in Australian consumer confidence.

Although it has not dropped anywhere near the 11% decline of Qantas Airways, the share price of Flight Centre Travel Group Ltd (ASX: FLT) has declined by around 5% today.

Whilst any softness in the demand for domestic travel is likely to have a negative impact on Flight Centre, I don’t believe it warrants the 5% decline in its share price today. Thanks to having extensive operations all around the world, Flight Centre should hopefully be insulated from soft demand domestically.

It is worth considering also that although consumer confidence is low, business confidence is surging higher at present. Flight Centre is the largest corporate travel manager in Australia with record segment turnover of $1.2 billion. I would expect that this segment could still be firing on all cylinders.

Flight Centre has been busy expanding into continental Europe in the last month. It announced that it has continued its global expansion by acquiring Dutch corporate travel agency Business Travel Development. This should prove to be another boost to the company’s growth prospects.

So I wouldn’t reach for the sell button right now. In fact, I think investors should consider reaching for the buy button. This dip means the shares are now priced at under 15x estimated FY 2016 earnings and pay a fully franked dividend with a yield of 4%.

I believe this puts the shares of this fantastic company in bargain territory now and would definitely choose it over Webjet Limited (ASX: WEB), which trades at 40x earnings currently.

I don’t believe the news today will stop the company from delivering the 7% per annum earnings growth that the market expects through to FY 2018. With travel prices around the world at some of the lowest levels in many years, Flight Centre is positioned to benefit greatly.

Don’t let the news out of Qantas Airways today put you off a long-term investment that could provide fantastic shareholder returns just like this amazing share.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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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