Despite its strong form over the last couple of months, the S&P/ASX 200 Index (ASX: XJO) is still trading around 19% lower than its February highs.
While this is disappointing, this isn’t a bad result compared to some shares on the index.
The Flight Centre Travel Group Ltd (ASX: FLT) share price has been a particularly poor performer this year. The travel agent’s shares are down 69% from their 52-week high.
Why is the Flight Centre share price down 69% from its high?
Investors have been selling the travel agent’s shares due to the impact the pandemic has had on the global travel market.
For example, during April the company’s total transaction value (TTV) was tracking at approximately 5% to 10% of normal levels.
The good news, though, is that Flight Centre has been cutting its costs materially to combat this.
Last month management revealed that it was making strong progress towards reducing its global cost base down to its $65 million per month target. This should mean the company has more than enough liquidity to ride out the storm.
Is the Flight Centre share price a bargain buy?
While Flight Centre could prove to be a good long term investment, I wouldn’t be in a rush to invest.
This is because, although I’m optimistic that domestic tourism will start its recovery in the coming months, it will take some time before the local travel market returns to normal.
Furthermore, it will take even longer for international tourism to return to normal levels.
In light of this, I think the company has a tough couple of years ahead of it. As such, I wouldn’t expect its profits to return to previous levels any sooner than FY 2022, but possibly later.
For the same reasons, I’m not in a rush to buy Webjet Limited (ASX: WEB) shares either just yet.
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As of 2/6/2020
More reading
- Why the price of these ASX travel shares soared over 30% since mid-May
- 3 ASX 200 shares to watch this week
- 5 ASX 200 winners and 3 losers from last week
- The Webjet share price jumped 35% in May: Is it too late to invest?
- ASX retail shares best placed to benefit from wall of industry bankruptcies
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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