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Is the Corporate Travel Management share price in the buy zone?

With the Corporate Travel Management Ltd (ASX: CTD) share price falling 18.4% in 2019 so far, I think it’s the right time to buy.

Background on Corporate Travel Management

Corporate Travel Management provides travel solutions including corporate, events, leisure, loyalty and wholesale travel. The group provides travel planning for the resources sector, conferences, holidays, sports and general corporate travel. The company has offices in Australia, North America, Europe and Asia. It has a market capitalisation of $1.89 billion.

Why I think it’s a buy

Corporate Travel Management trades on a price-to-earnings (P/E) ratio of 20.69x. While this is slightly higher than the ASX 200, which has a P/E ratio 19.31x at the time of writing, its valuation can be justified by the powerful earnings growth experienced by the group. The company more than doubled earnings from 2016 to 2019 from 41.5 cents per share to 83.95 cents per share. This remarkable growth comes from both Australian and international operations.

This company trades on a grossed-up dividend yield of 3%. While this is may not be huge, its dividends are likely to grow along with earnings in the future. Additionally, the group has a payout ratio of just 48%, which means that it has plenty of room to increase dividends.

Corporate Travel Management has a solid track record with a return on equity above 11% every year since it listed in 2010. In some years this has climbed to more than 20%, suggesting that the group has great potential to provide high returns on shareholders’ funds.

Despite its high earnings growth, Corporate Travel Management has a conservative debt to equity ratio of just 6.9%. This is very low for a company that is providing increasing profits to shareholders and suggests careful management. It also means that the group is well positioned to weather any coming headwinds in the global economy.

Indicators for future growth also suggest that this group will continue to grow earnings, this includes a boost from a recent acquisition along with 21% increase in revenue for FY19. This translated into a 12% increase in net profit after tax. The group’s current strategy to optimise operations should lead to higher margins and more revenue increases being translated to profits. Further, revenue growth should continue with 90% of users of Corporate Travel Management’s technology saying that they would recommend it to a colleague.

Foolish takeaway

Corporate Travel Management is on a P/E ratio only slightly above the ASX 200 despite significant earnings growth and a very low debt profile. It has a solid return on equity and has performed well for many years. I think its buy.

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Motley Fool contributor Chris Chitty has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited. 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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