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Why the Flight Centre Travel Group share price sank to a 52-week low today

The Flight Centre Travel Group Ltd (ASX: FLT) share price has continued its disappointing run with another decline on Tuesday.

In early trade the travel agent’s shares fell a sizeable 4% to hit a new 52-week low of $42.03, bringing its four-month decline to a massive 39%.

Why is the Flight Centre Travel Group share price at a 52-week low?

The Flight Centre share price has come under pressure in recent weeks after providing weak profit guidance at its annual general meeting at the end of October.

At the meeting the company advised that first-half profit before tax would range between $140 million and $150 million, which represents an increase of 0.4% to 7.6% over the same period last year.

Looking to the full year, management expects profit before tax to come in at $390 million to $420 million or 1.4% to 9.2% ahead of FY 2018’s result. Both figures were below the broker consensus estimate.

The main cause of the soft growth is the company’s Australian business. Although management expects total transaction value (TTV) to climb modestly, earnings are expected to go backwards.

Should you buy the dip?

I estimate that Flight Centre’s shares are currently changing hands at approximately 15.5x full year earnings.

While I feel this is about fair if the company were to achieve the middle of its guidance range in FY 2019, I would suggest investors consider holding out until the release of its half year results early next year.

At that point management may be able to narrow its full year guidance range, hopefully towards the higher end of it.

In the meantime, I think the likes of Helloworld Travel Ltd (ASX: HLO) and Webjet Limited (ASX: WEB) would be better options for investors. I believe their shares offer compelling risk/rewards based on their respective valuations and growth profiles.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended 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.

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