Are short sellers wrong about Flight Centre shares?

Flight Centre Travel Group Ltd (ASX: FLT) shares are down 0.38% in early afternoon trading today.

Shares in the S&P/ASX 200 Index (ASX: XJO) travel company are currently changing hands for $18.24 apiece.

While that’s down today, Flight Centre shares remain up a healthy 27% so far in 2023.

But, judging by the high levels of short interest, a fair number of ASX 200 investors believe those gains may be unwarranted.

Do short sellers have this one right?

Flight Centre shares kicked off Monday with the dubious honour of being the most shorted ASX share, with an 11.1% short interest.

Now, the ASX 200 travel stock could certainly slide from today’s levels as consumers tighten their belts and delay some travel plans amid stubbornly high inflation. But I believe the company is in a strong position over the medium and longer term. Meaning many short sellers may be caught, well, short.

Inflation or not, domestic and international travel numbers continue to pick up from the disastrous pandemic lockdowns. In fact, when the company released its half-year results last month, it forecast that international capacity would hit 85% of pre-COVID levels by the end of June.

China’s reopening should help drive demand for the company’s services, helping support Flight Centre shares.

And while the company still reported a $2.4 million underlying post-tax loss for the six months ending 31 December (H1 FY23), that was a huge improvement on the $188 million loss posted in the prior corresponding half year.

Revenue leapt 217% year on year to $1 billion. And underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) leapt to $95 million, up from a $184 million loss in H1 FY22.

Flight Centre ended the half year with a $465 million net cash position.

All told this doesn’t bode well for the large number of short sellers betting against Flight Centre shares.

Especially not when contrasted with the positive investor interest in the company’s massively oversubscribed share purchase plan (SPP).

The SPP was intended to raise $40 million to partly fund the company’s $211 million acquisition of United Kingdom-based luxury travel brand, Scott Dunn. A $180 million institutional capital raise will fund the rest.

The huge amount of retail investor interest saw Flight Centre increase the SPP offer to $60 million.

While some short sellers may make a quick buck on any shorter-term pullback in the Flight Centre share price, I believe this stock is better off in investors’ long-term buy-and-hold portfolios.

How have Flight Centre shares been performing?

As you can see in the chart below, Flight Centre shares have enjoyed a very strong rebound in 2023. Shares are up 27% this year, though they remain down 8% over the past 12 months.

Short sellers may also wish to take note that the ASX 200 travel stock remains down 48% from its pre-COVID levels in early February 2020.

The post Are short sellers wrong about Flight Centre shares? appeared first on The Motley Fool Australia.

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More reading

• Here are the 10 most shorted ASX shares this week
• Rising Flight Centre share price delivers 25% gains to SPP investors in a week
• 2 ASX 200 shares to buy for ‘excellent value’: fund manager
• Here are the 10 most shorted ASX shares this week
• Why has the Flight Centre share price tumbled 11% in a week?

Motley Fool contributor Bernd Struben 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.

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