Shares in Corporate Travel Management Ltd (ASX: CTD) are up 993.3% since it listed at the back end of 2010. Some might argue that following its stellar run the stock now looks overpriced given it has a trailing price-to-earnings ratio (PER) of 37 based on adjusted net profit after tax (NPAT).
It is true that the current share price factors in lots of continued growth for the company, but in my opinion it is likely that over time it will surpass these expectations.
Corporate Travel has grown earnings-per-share (EPS) from 6.6 cents in 2010 to 42.8 cents in 2016 representing a compound annual growth rate (CAGR) of 37%. If this can be maintained, then it will report EPS of $2.07 in 2021 and a $20 share price will be a distant memory.
But size tends to dampen growth and Corporate Travel is a much bigger business today than it was in 2010. Despite this, the company has so far experienced improving growth over time recording EPS CAGR of 42% since 2013 and 53% last year.
Furthermore, Corporate Travel is still a very small fish in the global corporate travel market which is worth US$1.4 trillion and growing at US$40 billion per year. This dwarfs the $3.6 billion of total transaction value that Corporate Travel Management recorded in 2016.
Acquisitive companies like Corporate Travel often become unstuck over time for various reasons including integration issues, mounting debt and the need to buy increasingly large companies to maintain growth rates.
However, organic growth has contributed more than purchased businesses to Corporate Travel's impressive performance as a listed entity. The company also has $44.1 million in net cash and reported 24% return on equity in 2016 which is very strong for a serial acquirer that uses little debt.
Corporate Travel strikes me as a very well run business operating in an attractive industry. As long as founder Jamie Pherous continues to lead the company, I can't see any reason why its share price won't exceed $20 sooner or later.
