Down 23% in a month, why this ASX 200 stock is an 'attractive opportunity'

After falling hard, a top fund manager is seeing an opportunity with this stock.

| More on:
A woman sits crossed legged on seats at an airport holding her ticket and smiling.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The S&P/ASX 200 Index (ASX: XJO) stock Flight Centre Travel Group Ltd (ASX: FLT) has gone through rough times in the last few weeks. In the past month, the Flight Centre share price has dropped by close to 20%.

Created with Highcharts 11.4.3Flight Centre Travel Group PriceZoom1M3M6MYTD1Y5Y10YALL1 Jan 202014 Nov 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.com.au

Big declines aren't exactly what shareholders want to see, but it can open up a new buying opportunity for investors wanting to buy (more).

The last few years have been very volatile for ASX travel shares due to the impacts of the COVID-19 pandemic. The recent decline has brought the Flight Centre share price back to December 2020 levels.

Fund manager L1 Capital has named Flight Centre as a turnaround opportunity for a few different reasons.

Why did the ASX travel share drop?

L1 recently noted in its monthly update that the Flight Centre share price fell 29% in October because the business provided a softer FY25 first quarter update, which noted impacts from airfare price deflation and downtrading in some corporate accounts.

In that update, the ASX 200 stock reported that it was trading "marginally" above the FY24 first quarter across most key metrics, including total transaction value, profit margin and underlying profit.

However, the ASX travel share said the global corporate travel sector activity was flat in the first quarter and that growth was impacted by airfare deflation and downtrading, but there were "positive early signs for October".

Flight Centre warned that airfare price deflation is having a short-term impact on total transaction value (TTV) growth. Solid volume growth during the first quarter was offset largely by the deflation.

In the subsequent AGM trading update, Flight Centre said its quarterly TTV in the first quarter of FY25 was reasonably flat at around $6 billion, but with strong ticket volume growth of 15%, offset by the airfare deflation. It also saw a 2% underlying increase in its profit before tax (PBT) to $65.5 million, with the underlying PBT margin in line with the prior corresponding period at 1.1%.

But, Flight Centre saw a rebound in October, with TTV up 6% and underlying PBT up around 30%. For the corporate segment in October, it saw record monthly TTV and revenue globally, with its best results in Australia since FY19.

What does the fund manager like about Flight Centre shares?

L1 cautioned there may be near-term volatility for the ASX 200 stock driven by moderating travel activity, but the investment team believe the business is "much more efficient and productive" than it was compared to its pre-COVID position.

The fund manager noted that on the leisure side, more than half of the legacy retail store network has been closed, and the remaining footprint has been optimised to generate better returns. L1 also likes that the company has shifted its sales mix towards more luxury travel and independent store networks.

On the corporate side, the investment team noted that the segment "continues to grow strongly and is now the third largest corporate travel manager globally".

Flight Centre is looking to become more profitable than it was in previous years, with a 2% underlying PBT margin target over the medium term. If achieved, this would lead to a 50% increase in PBT terms from 2024 levels, according to L1.

The fund manager concluded its thoughts on the ASX 200 stock with the following:            

Trading on only ~13x FY25 consensus earnings, with a strong balance sheet position, we believe Flight Centre remains an attractive opportunity and have used the sell-off to add to our position.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the 'five best ASX stocks' for investors to buy right now. We believe these stocks are trading at attractive prices and Scott thinks they could be great buys right now...

See The 5 Stocks *Returns as of 7 February 2025

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 no position in any of the stocks mentioned. The Motley Fool Australia has recommended Flight Centre Travel Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Travel Shares

Man sitting in a plane looking through a window and working on a laptop.
Travel Shares

Own Qantas shares? Here's what to look out for in the upcoming result

What can investors expect in the impending HY25 result?

Read more »

Man sitting in a plane seat works on his laptop.
Travel Shares

2 high-profile ASX 200 travel shares reporting next week

Are these Aussie travel companies set for turbulence this reporting season?

Read more »

An elephant and a mouse on either end of wooden scales
Travel Shares

Why I think this ASX small-cap stock is a bargain at under 80 cents

I believe this small company has a lot of growth potential.

Read more »

a passenger plane is on the tarmac with passenger shute attached with a view of the surrounding land and sunset in the background.
Travel Shares

2 things dragging the Qantas share price lower on Thursday

It's a crummy day for the Flying Kangaroo.

Read more »

Man sitting in a plane seat works on his laptop.
Travel Shares

Why is the Qantas share price having such a tough time today?

Is this government news affecting Qantas?

Read more »

A woman sits crossed legged on seats at an airport holding her ticket and smiling.
Travel Shares

Can the Qantas share price be a top performer again in 2025?

How high can Qantas shares soar?

Read more »

A woman looks nervous and uncertain holding a hand to her chin while looking at a paper cut out of a plane that she's holding in her other hand. representing the falling Air New Zealand share price today
Travel Shares

Uh-oh! Are Qantas shares now 'highly overvalued'?

A leading expert forecasts headwinds for Qantas shares in 2025. But why?

Read more »

A woman reaches her arms to the sky as a plane flies overhead at sunset.
Travel Shares

Is this a good time to buy Qantas shares?

Can we still get onboard with this flying stock?

Read more »