The Flight Centre Travel Group Ltd (ASX: FLT) share price continued its poor run on Tuesday and dropped to a two and a half year low.
The travel agent giant's shares dropped a further 1% to $37.04. This stretched its year to date decline to almost 16%.
Why is the Flight Centre share price under pressure?
Last week Flight Centre released a trading update which revealed that it expects record sales for the first half of FY 2020. This follows an 11% increase in total transaction value (TTV) to $12.4 billion during the half.
Management notes that this indicates that it is winning market share.
It also advised that its underlying first half profit before tax was likely to be slightly above the mid-point of its guidance range. Flight Centre had previously provided half year guidance of $90million to $110 million.
Whilst this is all positive, it was management's comments relating to the second half that spooked investors and sent them to the exits.
Flight Centre's managing director, Graham Turner, warned: "While it was too early to predict the virus's overall impact, it had already adversely affected FLT's small corporate travel operations in China, Singapore and Malaysia, which together generated about $625million in TTV during FY19 (about 2.5% of group TTV)."
Mr Turner also warned that corporate travel markets globally are tough due to the virus and that leisure travel markets are fragile.
He said: "It is impossible to predict the virus's impact on our business or on leisure and corporate travel in general at this early stage, but it will impact travel patterns to some degree in the near-term."
In light of this, the company admitted that its already ambitious guidance for the full year was looking unlikely. It advised that "the virus's emergence has inevitably made it more difficult to deliver the strong 2H earnings weighting implied in full year guidance ($310million-$350million)."
Should you buy the dip?
With its shares changing hands at around 16.5x estimated forward earnings, I feel Flight Centre's shares look good value.
However, at this stage I feel it is too soon to make an investment and would suggest investors wait for its performance to improve.
In the meantime, I would sooner by online travel agent Webjet Limited (ASX: WEB). After a pullback in its share price, I believe it is great value based on its strong long-term growth outlook.
