Many value investors will take a brief look at travel agent Flight Centre Travel Group Ltd's (ASX: FLT) share price of more than $41 and a stated P/E ratio of 21x and bypass the company.
That could be a huge mistake.
Firstly, a share price of $41 is relative to the company's earnings. When the company is earning more than $2.00 per share each year, that's the equivalent of a $5.00 stock earning 25 cents per share, or a $1 stock earning 5 cents per share.
Coming to the P/E ratio of 21x, Flight Centre is a high-quality company and has generated consistent revenue and earnings growth over the past decade, so it deserves a premium to the market average. The S&P/ASX 200 (Index: ^AXJJO) (ASX: XJO) current sports a P/E of 16.7x. Companies in its peer group, Corporate Travel Management Ltd (ASX: CTM) is on a P/E of 49.9x, Webjet Limited (ASX: WEB) is on 17x (and arguably cheap too) and travel insurance provider Cover-More Group Ltd (ASX: CVO) is on a P/E of 25.5x.
We also have to consider a number of characteristics that makes Flight Centre stand out from the crowd. One of our favourites is insider ownership. Founder and current CEO Graham 'Skroo' Turner owns more than 15 million shares in the company. We're happy to invest alongside him.
Another is the fact that Flight Centre operations in all its ten geographies have been profitable for four consecutive years- seven reported record profits in the 2014 financial year. The travel agent is not just standing still though and is growing its international operations mainly organically – another factor we love. No overpriced, senseless acquisitions here.
The fact that international revenues will likely overtake Australia's take within the next year or two stands Flight Centre in good stead if the Australian dollar continues to fall or stay at low levels.
Flight Centre has virtually no debt and a substantial cash balance – net cash at the end of December 2014 stood at $398 million and continues to grow. This is one company that won't need to kowtow to its bankers if things get rough. With a decent fully franked dividend yield of 3.7% and Flight Centre is gaining bonus points.
And finally, after a disappointing first half, Flight Centre is aiming for accelerated second-half growth. For a company that often under-promises and over-delivers, that's a big statement. I'm already on board, are you?
