Is the Flight Centre (ASX: FLT) share price overvalued?

Few ASX-listed companies are as highly contentious as Flight Centre Travel Group Ltd (ASX: FLT) and its share price. The Australian travel agency is consistently ranking in the top 10 most shorted shares on the ASX, despite shares rallying 39% in value this year.

Today, the company’s shares are flying into the new week slightly lower than last. At the time of writing, the Flight Centre share price is swapping hands for $22.29, down 2.88%.

Meanwhile, the great debate rages over whether the embattled travel share is worth its value. There are two schools of thought from analysts — yes and no. So, let’s break down each of those.

Looking lofty

It might be hard to fathom but Flight Centre is back to its pre-pandemic valuation. This is due to the number of outstanding shares nearly doubling since the beginning of the COVID-19 onslaught. In short, this means the market capitalisation is back above $4.4 billion despite the share price being approximately half of what it was in September 2019.

While the market valuation has recovered, the company’s earnings certainly haven’t. This has attracted the interest of short-sellers with the belief the Flight Centre share price is overinflated on reopening hopes.

According to the AFR, participants who are bearish on the travel agent expect the resumption of travel will actually depress the company’s working capital. This is due to the large backlog of travel credits accumulated by customers from cancelled travel plans.

In addition, one analyst is wary of the changing travel landscape. Australia’s iconic airline Qantas Airways Limited (ASX: QAN) has made the move to reduce commissions paid to travel agents. Although Flight Centre insists this is not a concern, bears think otherwise.

Last week’s 10 most shorted ASX shares placed Flight Centre in pole position. According to the data from ASIC, the company posted a short interest of 11%.

Bullish thesis for Flight Centre share price

On the other hand, there are investors who maintain the belief that shares in the travel agent could hold more upside.

Director at Carter Bar Securities Peter Drew paints a portrait of optimism for the Flight Centre share price. Looking at the company’s 2024 projections, Drew anticipates $12 billion of total transaction value (TTV) from the corporate unit alone.

Furthermore, Drew believes this could result in approximately $220 million of profit for 2024. He argues that if this is given the same price-to-earnings (P/E) ratio multiple as Corporate Travel Management Ltd (ASX: CTD), the company would be then be valued at $4.4 billion. Importantly, this disregards any contribution from the leisure unit of the business — offering potential further upside to the Flight Centre share price.

The post Is the Flight Centre (ASX: FLT) share price overvalued? appeared first on The Motley Fool Australia.

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Motley Fool contributor Mitchell Lawler 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 owns shares of and has recommended Corporate Travel Management Limited. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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