The Flight Centre Travel Group Ltd (ASX: FLT) share price has dropped more than 12% in just one month, as we can see on the chart below. So this could be a good time to consider if the ASX travel share is a buy.
The travel agent business has a large exposure to both leisure and business travel. As such, it's benefiting from the big rebound post-COVID-19. I'm going to look at a couple of factors to consider about the company.
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The positives
In June 2023, the business gave an update that said the market recovery is continuing, demand is "rebounding", and trading conditions are "gradually starting to normalise". Though airfares are still "well above" pre-COVID levels.
Despite climbing inflation and ensuing interest rate rises, there seems to be "no obvious signs of slowdown flowing from macroeconomic changes", according to the company.
It revealed global corporate business was outpacing the industry recovery. That segment delivered a record total transaction value (TTV) during FY23 even though client activity was only tracking at 70% to 80% of pre-COVID levels.
The leisure sector recovery is gaining momentum during the seasonally busier FY23 second half, with Australia leisure TTV tracking broadly in line with pre-COVID levels in May 2023.
Flight Centre said that it's targeting an underlying profit before tax margin for FY25 of 2%, with the improvement to be driven by a combination of revenue margin increases and further cost margin decreases.
Why the Flight Centre share price may not be a buy
The ASX travel share's success is already well known from the business updates it has released over the last year. To keep rising from here, it may need to keep reporting stronger and stronger demand than the market was expecting, which seems somewhat unlikely to me.
How many more holidays in the short term are people going to go on? There was a post-COVID boom, but borders have been open for a long time now. So while good travel activity may continue, I'm not sure that it's going to keep increasing from here as strongly in percentage terms.
Discretionary retailers have been reporting less demand, which could suggest that households have less money to spend. Certainly, a holiday may be one of the things that's delayed if budgets need to be tightened.
According to Commsec estimates, the Flight Centre share price is valued at 19x FY24's projected earnings.
Foolish takeaway
Flight Centre may be one of the few S&P/ASX 200 Index (ASX: XJO) shares able to report good profit growth in FY24, but I think the current valuation accounts for that. I wouldn't call it a great buy today but after the recent fall in its share price, I certainly wouldn't call it overly expensive either.
