Talk about bad timing! The Corporate Travel Management Ltd (ASX: CTD) share price is crashing today just as a broker upgraded the stock following its savage sell-off.
CTD’s share price crashed 11.6% to $20.28 in lunchtime trade and may soon re-test its 2018 low that it hit on Monday.
The stock is the second-worst performer on the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index at the time of writing with the Lendlease Group (ASX: LLC) taking the wooden spoon with an 18.5% dive after announcing a big write-down.
What’s going on?
CTD’s problems were triggered by its battle with hedge fund VGI Partners, which has aggressively short-sold the stock and released a report outlining several issues with CTD’s business.
The company issued a vigorous rebuttal of VGI’s accusations and released positive findings from auditor Ernst & Young (EY) to help drum up support for the stock. EY is also the auditor for Flight Centre Travel Group Ltd (ASX: FLT).
Morgans responded by upgrading CTD to “add” from “hold” today as it believes the stock is being unfairly targeted.
“After having more time to review the VGI reports and the increased disclosure CTD provided today, we have confidence in the company’s business model, growth strategy and financials,” said the broker.
“We continue to believe the VGI claims contain a number of inaccuracies and appear unfounded on what we believe is a quality company.”
Morgans increased its price target on the stock to $26.72 from $23.30 per share and said that the valuation doesn’t factor in any upside from potential acquisitions.
Morgan Stanley has also come out to reiterate its “overweight” recommendation on the stock with a $27 per share price target following the EY review.
The broker noted that the key question over cash generation has been addressed by the auditor with EY confirming that working capital movements are in line with total transaction value (TTV) and that investor concerns do not accurately reflect payments and receipts.
But don’t think for a moment that the share price volatility is over and today’s share price reaction proves this. While CTD’s current share price may prove to be cheap over the coming months, I’m putting it in the “too hard” basket – particularly given that there are other promising stocks with a clearer outlook.
Coincidentally, CTD’s sell-off today comes as the Flight Centre share price and Webjet Limited (ASX: WEB) share price are also under pressure.
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Motley Fool contributor Brendon Lau 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 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.