The travel industry certainly has been a great place to be invested over the last 12 months. During this time there have been strong gains generated by many of the leading travel companies.
For example, the Flight Centre Travel Group Ltd (ASX: FLT) share price has risen 65%, the Corporate Travel Management Ltd (ASX: CTD) share price has climbed 13%, the Helloworld Travel Ltd (ASX: HLO) share price has surged 23% higher, and the Webjet Limited (ASX: WEB) share price has pushed 10% higher.
Impressive half-year results from all four companies have largely been the catalyst for this outperformance.
Is this the top or can they continue to go higher?
In my opinion the answer to the above question is company specific. While some look to be good value, I feel others are bordering on expensive.
At 23x estimated FY 2019 earnings, Flight Centre’s shares are trading on a multiple far higher than their average over the last five years. During that time the company’s shares have traded at an average of 16x earnings.
Surprisingly, though, there isn’t any above-average earnings growth expected over the next 12 months to justify this premium. Whilst things could of course change, the market is currently only expecting Flight Centre to grow earnings per share by 3.6% in the next financial year.
Whereas online rival Webjet is tipped to grow earnings by 40% in FY 2019. This in my opinion makes Webjet’s shares look far better value at 24x estimated FY 2019 earnings.
It is a similar story for Corporate Travel Management. Its shares may be trading on a sky-high earnings multiple at present, but the market is confident that it can continue its strong earnings growth for the next few years.
And finally, perhaps the best value of all these shares could be Helloworld. By my estimates its shares are changing hands at just 14x FY 2019 earnings.
Which is very surprising considering it has grown its earnings by an average of 21% per annum over the last five years and similarly strong growth is expected over the next couple of years.
Which is the one to buy?
My preference remains Webjet due to its strong brands, diverse business, attractive valuation, and its history of bookings growth ahead of the industry rate. But Helloworld wouldn’t be far behind.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and Flight Centre Travel Group Limited. The Motley Fool Australia owns shares of Helloworld Limited. The Motley Fool Australia has recommended Webjet Ltd. 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 Scott Phillips.