The Corporate Travel Management Ltd (ASX: CTD) share price is down 28% from its all-time high after an October short attack from the hedge fund VGI Partners and the wider market sell-off.
Corporate Travel Management Ltd (often known as CTM) supplies corporate travel booking services in North America, Europe, Asia and Australia & New Zealand. Along with fellow travel booking companies Webjet Limited (ASX: WEB) and Flight Centre Travel Group Ltd (ASX: FLT), CTM has been a very strong performer over the past decade, rising in value by more than 2,000% excluding dividends.
But, should you invest with so much uncertainty?
Valuation
CTM shares currently trade at 33x current year earnings and 29x forward earnings. This looks quite expensive considering the market currently trades at around 16/17x earnings. However, it has the power of compounding on its side! CTM is a high-growth business and investors should look at whether the market is over or underpaying for this growth.
Step in the Price/Earnings to Growth ratio (PEG Ratio) – my favourite ratio for measuring a company's value versus market expectations. CTM recently grew earnings by 33%, implying a PEG ratio of around 1. As a result, it appears that the stock is fairly valued.
Potential
CTM has a long runway for growth! The corporate travel industry is highly fragmented, meaning that a smart acquirer like CTM has plenty of candidates to assess and purchase. Being fragmented also means that the industry isn't dominated by one or two large players with a lot of pricing power. CTM's net profit margin currently sits at a healthy 21%, which has expanded over the last few years. The combination of these factors means the company can target profitable growth for the foreseeable future.
CTM currently has a dividend yield of 1.7% (or 2.1% grossed up). Boosting strong organic growth by acquisition requires cash (or sometimes stock). With a payout ratio of 50% there is scope for the company to increase its dividend, however, that is unlikely given the company's strategy. As earnings grow the company could raise its dividend over time. The most recent half-year dividend grew 16.7% over the prior half-year dividend.
The short attack
CTM responded swiftly to the short attack with two strong, yet imperfect rebuttals. Since then the company has been focussed on executing at the business level. This type of focus is exactly what I want to see from management in this situation.
Foolish takeaway
Corporate Travel Management Ltd is a well-run company, growing strongly through smart acquisitions and organic growth. So long as VGI Partners continue their short attack on the company there will be increased volatility. I would suggest that the recent pullback and potential ongoing volatility in the CTM share price presents an opportunity for risk-accepting investors to grab hold of a quality company at a reasonable price. As Warren Buffett would say, "Be greedy when others are fearful".
