The whole world is waiting on an effective COVID vaccine. But if and when a proven vaccine arrives, the Flight Centre Travel Group Ltd (ASX: FLT) share price likely won’t be the bargain it is today.
Like most travel related shares – such as Webjet Limited (ASX: WEB) and Sydney Airport Holdings Pty Ltd (ASX: SYD) – Flight Centre’s share price was particularly hard hit from the fallout of the coronavirus.
From 21 February through to 19 March shares tumbled 75%. Flight Centre’s share price is up 52% since that low, but remains down 66% year-to-date.
By comparison the S&P/ASX 200 Index (ASX: XJO) is down 8% in 2020.
What does Flight Centre Travel Group do?
Flight Centre is one of the world’s largest travel agency groups. Its company-owned operations span more than 23 countries and its corporate travel management network covers more than 90 countries.
The company has a broad range of brands across its corporate, leisure and destination segments. These include Student Flights, Travel Money Oz, Corporate Traveller and Topdeck.
Flight Centre shares first began trading on the ASX in 1995.
Why buy shares in Flight Centre before a vaccine is proven?
As Benjamin Franklin famously quipped, “In this world, nothing is certain except death and taxes.”
So too, we can’t be certain that the world’s scientists will produce a highly effective vaccine to squash COVID-19 from our lives. But there are tremendous incentives for the leading pharmaceutical companies to do so. And they’re backed by unprecedented funding, cutting edge technology, and some of the best minds in the world.
So, while nothing is certain, I believe we’ll see a series of vaccines rolled out over the coming 12–24 months. The initial ones may only be 50% effective, as some clinical trials are already reporting. That’s a big step in the right direction, but not enough to reopen global travel. Or rejuvenate Flight Centre’s revenues and share price to early 2020 levels.
However, with time, the results will almost certainly improve. Remember, this global race for an effective vaccine only kicked off 7 months ago.
But the vast majority of investors don’t look ahead 2 or more years. They wait until good news is locked in and then invest, along with everyone else.
In this case the good news is a proven vaccine. And that news will likely trickle out over a period of months as it progresses through various trials. And with each new successful announcement leading ASX travel and leisure shares are likely to see renewed investor interest. Which is why, by the time such a vaccine is approved and in mass production, the biggest gains to be had from these shares will already be history.
As mentioned up top, Flight Centre’s share price is still down 66% from 2 January’s $39.52 per share. In my opinion, there’s no reason shares couldn’t be trading for $39.52 again once air travel returns to its pre-pandemic levels.
If they do, that would represent a 190% share price gain from yesterday’s closing price of $13.61. Should that eventuate, I imagine that’s worth waiting a few years for things to play out.
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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group 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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