Is the Flight Centre (ASX:FLT) share price good value?

The Flight Centre Travel Group Ltd (ASX:FLT) share price fell heavily on Thursday. Is this a buying opportunity for investors?

| More on:
view from below of jet plane flying above city buildings representing corporate travel share price

Image source: Getty Images

The Flight Centre Travel Group Ltd (ASX: FLT) share price was out of form on Thursday.

The travel agent giant’s shares were down as much as 8% at one stage before ending the day with a 2.5% decline to $14.93.

This means the Flight Centre share price is down almost 7% year to date.

Why did the Flight Centre share price tumble on Thursday?

Investors were selling Flight Centre and Webjet Limited (ASX: WEB) shares following the release of an update from Qantas Airways Limited (ASX: QAN).

Although the airline operator revealed a significant improvement in its performance, its comments on travel agent commissions shocked investors.

Qantas advised that it is aiming to reduce its costs of sale by lowering front-end commissions paid to travel agents on international tickets from 5% to 1%. Investors appear concerned that other airlines will follow suit, hitting travel agents hard.

One broker that isn’t concerned by the news is Goldman Sachs.

It commented: “We make no changes to our earnings forecasts on either name [Flight Centre and Webjet] and do not expect this to become a broad-based phenomenon across all airlines, although it remains a key risk factor. We believe that Travel Agents will remain a key link to the airline distribution supply chain and although commission models may be restructured, we do not anticipate a strong permanent margin compression for these players.”

Is this a buying opportunity?

While Goldman Sachs continues to rate Webjet’s shares as a buy, it still isn’t recommending Flight Centre’s shares as a buy. This is despite its price target being well beyond current levels.

According to the note, the broker has retained its neutral rating and $20.00 price target on its shares. Goldman also notes that there are a number of upside and downside risks for investors to consider.

For the former, it sees a faster-than-expected recovery in trading environment, significant market-share gains in the online channel, and travel bubbles as potential upside risks.

Whereas key downside risks to consider are the potential emergence of COVID-19 strains which could make vaccines less effective, further decline in brick-and-mortar travel sales, increased competition in the corporate segment, and industry-wide reductions in travel agent commissions.

Food for thought for investors.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of May 24th 2021

Motley Fool contributor James Mickleboro 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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Travel Shares