Price movements are a fact of life when you own shares. Sometimes, falls can be a good opportunity to top up holdings of great businesses. Other times, topping up would actually be a terrible decision and compound your investing mistakes.
Fortunately, topping up on Flight Centre Travel Group Ltd (ASX: FLT) is likely a decision that fits in the former camp. Here are three reasons to top up (or buy!) Flight Centre today:
- Great financial position
With just $21 million in debt and $430 million in cash, Flight Centre has one of the best balance sheets on the ASX. With more than $1 billion in total cash (including client cash) it’s also a convincing way to play higher interest rates, if and when they might show up.
It’s tough to find a company with as much cash and as little debt, and the flexibility and security this brings is priceless – and a boon for the company’s 4.7% fully franked dividend.
- Growing product stable and strong investment in new opportunities
With the acquisition and launch of a number of new businesses including byojet, StudentUniverse, and Aunt Betty, Flight Centre is broadening its product base and further penetrating new markets. Additionally, the company recently launched transactional company websites in a number of locales including the UK, Hong Kong and United Arab Emirates, which should help drive sales of lower margin products.
Flight Centre has also begun to directly market its online booking engines for the first time, presumably to mitigate competition from Webjet Limited (ASX: WEB) as well as capture some more commoditised products. Flight Centre also has apps and travel money projects on the way, and importantly management has maintained its expenditure program despite weaker business performance this year (see below). This is an example of bearing short-term pain for long-term gain, and bodes well for shareholders.
3. It’s cheap
A recent announcement that profit before tax would come in some 2%-5% lower than the previous year knocked almost 15% off the value of Flight Centre shares, and they weren’t looking expensive at the time. Now they trade on a Price to Earnings (P/E) ratio of around 12, which is below the ASX average and pretty good really for a company with no debt troubles, growth options and a capable CEO.
The fall in profit also masked improving performance in a number of recent acquisitions as well as in overseas businesses. Better yet, ‘all countries/regions were tracking towards sales records at the end of last month and South Africa, New Zealand and the UAE could deliver record full year profit.’ There’s more to know, but Flight Centre shares look like good value now, and I first bought shares at $37 apiece last year.
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Returns As of 6th October 2020
Motley Fool contributor Sean O'Neill owns shares of Flight Centre Travel Group Limited. 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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