Financial news wires are reporting that the investment analysts at stock broker Morgans have put a bullish $22 price target on shares in Corporate Travel Management Ltd (ASX: CTD).
The valuation upgrade is partly to do with the group completing two new acquisitions of rival travel agencies in Tasmania and the U.K. for a total initial consideration of around $75 million. However, it should be noted that Brisbane-based Morgans undertook fee-earning underwriting and advisory work in respect of the capital raising so is likely to have a favourable view of the travel management company.
Still there's no questioning the 828% return Corporate Travel has delivered to investors who've held the shares for the past five years and the question now is whether the group can continue its ascent in the years ahead.
Insider share trading matters
It's also worth noting that Corporate Travel has a good track record of meeting or exceeding its profit guidance with its founder and chief executive, Jamie Pherous, still owning around 20% of the shares on issue.
Recently the ASX has seen multiple examples of share prices cratering after companies' founders or chief executives downgraded profit guidance not too long after selling shares in the business themselves.
Just today, Aconex Ltd (ASX: ACX) joined Bellamy's Australia Ltd (ASX: BAL) and Sirtex Medical Limited (ASX: SRX) in losing more than 40% of their value after big profit downgrades recently.
Not so with Corporate Travel though and I expect its boss and major shareholder is careful to give guidance he actually expects the company can meet and exceed. After all, if you owned 22% of the shares in a company and were not selling them you'd want to avoid the kind of disastrous announcements and embarrassing corporate governance we have seen come out of other supposedly leading Australian companies.
Rather than selling shares in the business, many of Corporate Travel's directors and senior management have been increasing their holdings by supporting capital raisings as the business continues to grow profits and dividends at rapid rates.
Heavy insider ownership and a founder running a business are two key qualities investors should look for when trying to identify what businesses may offer the best returns in the year ahead.
Corporate Travel then should tick the boxes for growth-oriented investors who place a high emphasis on management quality and integrity.
The stock sells for $17.54 today and can be quite volatile in part due to the limited free float with many shares in the hands of its staff and founder.
Of course like other highly-valued stocks there is significant downside risk if the business fails to meet expected growth rates, while it also relies to an extent on an acquisition strategy that carries multiple risks, although so far management's judgement and execution appears to have worked well.
Today shares sell for $17.54 with the company forecasting that its EBITDA for the year should come in between $92 million to $97 million, which would represent growth of 33% to 41% over the prior corresponding period.
It trades on around 31x analysts' estimates for earnings per share in financial year 2017, although the big unknown is what kind of growth the business will be able to deliver in FY 2018.
Some analysts are forecasting growth in the region of 20%-23% for financial year 2018 which would be another strong result if the company could deliver on it and mean earnings per share in the region of 73 cents.
It's possible though that these estimates are way wide of the mark to the upside or downside, which means the stock could be a big out or underperformer in the years ahead.
Personally, given the company's track record and heavy insider ownership I'm a buyer of its shares if they get a little cheaper. Although if I ever see its founder starting to sell down a large amount of his stake, I would likely be right behind him in selling my position.
