How do you value the Flight Centre share price in April 2022?

How can investors find out what the company is worth? Let’s take a look

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Key points

  • Flight Centre shares touched a year-to-date high of $22.59 on Thursday
  • The travel agent's shares have a price-to-earnings (P/E) ratio of minus 11.41
  • A negative P/E ratio means the company is losing money

The Flight Centre Travel Group Ltd (ASX: FLT) share price has been travelling higher over the past couple of months. Its shares reached a year-to-date high of $22.59 yesterday before slightly retracing.

However, after a disappointing finish on Wall Street overnight, the ASX is heading south today.

This has impacted the travel agent’s shares which are trading 3.08% lower at $21.86.

Calculating the value

The most common way to value an ASX share is to calculate the company’s price-to-earnings (P/E) ratio. Traditionally, this metric is used to provide more clarity if a company is overvalued or undervalued.

A P/E ratio can be broken down as the relationship between a company’s share price and its earnings per share (EPS).

Currently, Flight Centre has a negative P/E ratio of 11.41. The formula to work out the P/E ratio is the current share price divided by EPS (currently -1.977).

Essentially, this means the company is losing money and has not made a profit over the last 12 months.

Although, after two years of lockdowns and heavy restrictions, borders are now opening up as travel momentum builds.

In Flight Centre’s half-year results released in February, management highlighted a much-improved performance since the COVID-19 ravaged years.

Immediately after the Delta spike in late August and early September, the company recorded strong sales growth. This rebound, however, was short-lived, with the Omicron variant outbreak impacting demand in December.

Overall, Flight Centre posted an underlying loss after tax of $188 million, up 4% on the prior corresponding period.

Nonetheless, management remains optimistic about the near-term future, signalling a return to pre-Omicron profitability during FY22.

Although, this is based on the expectation that international travel continues to gradually return to normalcy.

Flight Centre share price snapshot

Over the past 12 months, the Flight Centre share price has lifted by around 21%. However, it is up around 60% since hitting near COVID-19 lows in August.

Currently, its share price is hovering around the upper middle of its 52-week range of $13.67 to $25.28.

Based on valuation grounds, Flight Centre has a market capitalisation of around $4.45 billion, with 199.74 million shares on issue.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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.

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