With the world reacting to COVID-19 news, markets have now been falling for the better part of 2 weeks.
Sectors directly impacted have been sold off sharply, and these include travel, tourism, hospitality, and other discretionary spending sectors.
In the travel segment, I have been watching HelloWorld Travel Ltd (ASX: HLO) for some time now and — as they say — if you like a share at $5, you should love it at $2.50 (its price at the time of writing).
Let’s take a deeper dive into HelloWorld business operations.
What does HelloWorld do?
HelloWorld is a multi-brand travel products and services distribution provider, with both a retail and an online presence. With over 2,496 travel agencies in its network, HelloWorld has grown to be one of the largest travel franchises in Australia. The company’s other segments include corporate travel management, air ticket consolidation, and freight services.
What I like
Based on full 2019 numbers, HelloWorld has been firing on all cylinders. In H120, total transaction value (TTV) increased by 12.9%, revenue was up by 9.8%, and earnings before interest, tax, depreciation and amortisation (EBITDA) was up by 14.8%. Business growth was underpinned by strong retail network expansion and acquisitions in the corporate travel segment.
Meanwhile, the HelloWorld share price has shed over 34% of its value in the past year and is now trading on a cheap price-to-earnings (P/E) ratio of 8.04. Debt is well covered by income with an interest coverage ratio of over 20, which compares well with the broader market’s ratio of 7.8.
What I dislike
The business is performing well on multiple metrics, however as a potential shareholder I would want to see HelloWorld’s earnings grow over time. Unfortunately, this hasn’t happened, with earnings-per-share (EPS) only increasing from 18.1 cents to 18.2 cents over the past couple of years. Such sluggish growth could signal that the company has been growing predominantly by acquisition and is now struggling to grow organically.
Further, as travel belongs to the bucket of discretionary spending, forsaken consumer spending is unlikely to be recuperated at a later stage. That is why, due to COVID-19, management has been guiding for flat or negative growth in 2020 and no one knows how long this situation will persist.
There is no question that COVID-19 is severely impacting HelloWorld’s business in the short and, possibly, medium term. However, as the famous contrarian investor motto goes “the best time to buy is when there’s blood in the streets, even if the blood is your own.” As such, I will be keeping an eye on HelloWorld share price, ready to buy once the price is too cheap to ignore.