Flight Centre (ASX:FLT) share price falls again amid Sohn short pick

Here’s why this fundie thinks Flight Centre is a poor investment

| More on:
a woman sits next to her wheel along suitcase with the handle raised in a desserted airport with her arms folded and a frustrated, sad expression on her face.

Image source: Getty Images

The Flight Centre Travel Group Ltd (ASX: FLT) share price is in the red today as one fund manager names the company’s stock his short pick.

Regal Funds Management chief investing officer Philip King reportedly told the Sohn Hearts & Minds conference the company’s recent gains make it an ideal short target.

At the time of writing, the Flight Centre share price is $17.18, 0.87% lower than its previous close.

For context, the S&P/ASX 200 Index (ASX: XJO) is currently sporting a 0.12% gain.

The company’s dip comes despite international travel stocks broadly gaining overnight, as my Foolish colleague has reported.

Here’s why this fundie is bearish on Flight Centre.

Fundie says Flight Centre share price a short target

The annual Sohn Hearts & Minds conference is here again, and once more the market is entranced with its “deliberately disruptive programming”.

And one stock that might be bearing that brunt today is Flight Centre, which was taken down a peg by King.

King reportedly compared the travel agency’s shares to those of Zoom Video Communications Inc (NASDAQ: ZM). According to reporting by The Australian, the fundie said the market was enthusiastic about Zoom last year as the world began working, socialising, and relaxing online, but that soon dissipated.

That’s the future he predicts for the travel agency’s shares.

The Flight Centre share price has now rebounded around 95% from its intra-COVID lowest close of $8.75. Though, it’s still significantly lower than its highest ever close – $62.43.

However, over the course of the pandemic, the company raised $800 million through issuing convertible notes.

King reportedly told the conference if its share price goes up, noteholders will convert their holdings into shares, thereby diluting the holdings of Flight Centre’s investors.

Whereas, if the share price goes down, bondholders won’t convert their bonds and the company will be faced with a bill.

If King’s prediction comes true, it could leave Flight Centre’s stock without room for growth or setbacks.

According to the latest data, 13.7% of the company’s shares are already in a short position.

And it’s not just Flight Centre’s financials and future share price King has taken issue with. He’s concerned about the company’s business model too.

Will Flight Centre be profitable post-COVID?

When the pandemic hit, Flight Centre began raising capital and cutting costs. That saw the company shutting down more than half of its bricks-and-mortar stores.

King reportedly believes the company will struggle to bring in the revenue it did prior to COVID-19 in the future as a result of the closures.

Additionally, it might not get the sort of incentives it used by directing travellers’ business to airlines.

King states that, more and more, airlines are pushing for customers to book directly, thus, bypassing Flight Centre’s commission. The Australian quoted him as saying:

The business was already facing a lot of difficulty before COVID-19. It has been slower than many other travel agents in migrating to a digital world.

It is doing a reasonable job, but online travel is a lot more competitive than the high street.

Right now, the Flight Centre share price is 7% higher than it was at the start of 2021. Though, it has fallen 42% over the last 5 years.

Should you invest $1,000 in Flight Centre right now?

Before you consider Flight Centre, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Flight Centre wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Zoom Video Communications. The Motley Fool Australia has recommended Flight Centre Travel Group Limited and Zoom Video Communications. 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