1 top ASX growth stock to buy that's down 40%

Here's why I think this stock could fly higher.

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The ASX growth stock Corporate Travel Management Ltd (ASX: CTD) looks like an exciting opportunity to me after its 40% fall from the post-COVID rebound in 2022, as we can see in the chart below.

The company is one of the world's largest corporate travel management businesses. While most of its revenue comes from the US, it has sizeable operations in Australia, New Zealand, Europe, Asia, and the rest of the Americas.

What's gone wrong with the ASX travel share?

There has been plenty of volatility since the start of COVID-19 and the market has adjusted its view on the outlook for Corporate Travel Management a few times. The latest adjustment by analysts, after looking at the FY24 first-half result, has been somewhat negative for a few different reasons.

The broker UBS said the company faced a few challenging factors, including challenging travel sentiment, exhausted North American travel budgets, and a materially lower contribution from the UK bridging contract.

Why I'm optimistic about the ASX growth stock

Firstly, I'd say that the Corporate Travel Management share price is now very attractive because of its upcoming potential profit numbers.

The ASX travel share is expected to generate 88 cents of earnings per share (EPS) in FY24, which means it's trading on a forward valuation of 18x despite the profit headwinds it's facing this financial year.

Corporate Travel reported continued client wins, above industry growth, in the FY24 first half (amounting to $0.63 billion). This is promising because of the additional earnings of those clients and the optimistic signs that future client wins may be around the corner.

The company said new client wins were on track to exceed an annualised travel spend of $1 billion for FY24, while the client retention rate was at 97%.

Corporate Travel is targeting revenue growth of at least 10% per annum over five years, which can help translate into a compound annual growth rate (CAGR) of earnings before interest, tax, depreciation and amortisation (EBITDA) of 15% over those next five years.

If the ASX growth stock's net profit after tax (NPAT) can compound at 15% (or more) per annum, then I'd suggest the current price/earnings (P/E) ratio is very cheap.

Future growth

The UBS numbers suggest Corporate Travel Management's revenue, net profit and dividend can grow every year between FY25 and FY28. Using those numbers, the ASX growth stock could be priced at under 16x FY25's estimated earnings and under 10x FY28's estimated earnings.

Excluding any potential franking credits, it could pay a dividend yield of 3.2% in FY25 and 5.1% in FY28, according to UBS' estimates.

In my opinion, the Corporate Travel Management share price looks very cheap if it's able to hit its revenue and profit growth goals. I'm thinking about buying some shares if it's still at this level (or lower) once Fool's trading rules allow me to invest.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Corporate Travel Management. The Motley Fool Australia has positions in and has recommended Corporate Travel Management. 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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