At face value, the Flight Centre Travel Group Ltd (ASX: FLT) share price is languishing well below its pre-COVID levels.
Right before the S&P/ASX 200 Index (ASX: XJO) descended into the COVID crash of 2020, Flight Centre shares were trading at around $35 each.
Fast forward to today and the Flight Centre share price is currently sitting at $16.36.
So, you can pick up Flight Centre shares at a 50% discount compared to pre-COVID levels, right?
Well, not so fast.
While the Flight Centre share price is certainly down more than 50%, the overall market value of the company isn't.
This is because Flight Centre tipped its hat to investors during the pandemic, raising capital to keep the company afloat.
So, when it comes to ASX travel shares such as Flight Centre, Webjet Limited (ASX: WEB), and Qantas Airways Limited (ASX: QAN), it's important to dig a little deeper.
Share price charts fail to account for the dilution that happens when a company issues new shares.
As a shareholder, you're a part owner of a company. But as more shares are issued, your ownership stake diminishes.
To use a food analogy, the pizza (i.e. company) has been cut up into more slices (shares). So each individual slice is smaller.
The impact of this is best reflected when calculating per-share metrics, such as earnings per share (EPS). As more shares are issued, a company's profits are spread more thinly across its shareholder base.
So while the Flight Centre share price may historically look very cheap, you're getting a lot less bang for your buck. Let's take a closer look.
Flying under the radar
The overall size of a company is measured by its market capitalisation.
To calculate a company's market cap, you simply multiply its share price by the number of shares it has on issue.
In Flight Centre's case, it has a much larger share count than it did before COVID. This is because it issued new shares to investors in return for cold hard cash.
In April 2020, the company launched a $700 million capital raising, issuing roughly 97 million new Flight Centre shares (at a steeply discounted price compared to their former glory, I should add).
But before this, the company had approximately 100 million shares on issue.
Multiplying this with Flight Centre's pre-pandemic share price in February 2020 gives us a market cap of around $3.6 billion.
Fast forward to today and the company's most recent ASX notice details roughly 200 million ordinary Flight Centre shares on issue.
So, the company currently commands a market cap of around $3.3 billion.
This means that in actual fact, Flight Centre is down just 9% from its pre-pandemic valuation.
Plus, it has up to 45 million new shares waiting in the wings in the form of convertible notes to further dilute shareholders. This isn't reflected in the market cap.
While Flight Centre's market valuation has nearly recovered, its financials certainly haven't.
The company recently handed in its FY22 results, revealing a 154% surge in revenue to $1 billion while delivering a net loss of $287 million.
In contrast, Flight Centre booked a $264 million profit in FY19 from revenue of $3 billion.
Can the Flight Centre share price gain altitude?
Looking at the lay of the land, it seems brokers are neither bullish nor bearish on the Flight Centre share price.
Analysts at Citi recently upgraded their rating on Flight Centre shares from sell to neutral. The broker has a 12-month price target of $16.60.
Meanwhile, analysts at Goldman Sachs have maintained a neutral rating on Flight Centre shares. On the back of the recent results, Goldman trimmed its price target to $19.60.
Analysts at Macquarie have also retained their neutral rating, with a 12-month price target of $18.20.
