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The Flight Center Travel Group Ltd (ASX: FLT) The stock price is in the red today as a fund manager names the company’s stock his choice short.
Regal Funds Management’s chief investment officer, Philip King, reportedly told the Sohn Hearts & Minds conference that the company’s recent gains make it an ideal short target.
At the time of this writing, Flight Center’s stock price is $ 17.18, 0.87% below its previous close.
For the context, the S & P / ASX 200 Index (ASX: XJO) is currently showing a gain of 0.12%.
The business downturn occurs despite international travel inventories gain vastly overnight, as my crazy colleague pointed out.
Here’s why this fundie is bearish on Flight Center.
Fundie says Flight Center stock price is a short target
The annual Sohn Hearts & Minds conference is back, and once again the market is mesmerized by its “deliberately disruptive programming”.
And one of the actions that could pay the price today is Flight Center, which was cut by King.
King reportedly compared the actions of the travel agency to those of Zoom Video Communications Inc (NASDAQ: ZM). According to report by the australian, the fundie said the market was excited about Zoom last year as the world began to work, socialize and relax online, but that quickly dissipated.
This is the future he predicts for the shares of the travel agency.
Flight Center’s stock price has now rebounded about 95% from its intra-COVID low close of $ 8.75. However, it remains significantly below its highest level on record – $ 62.43.
However, during the pandemic, the company raised $ 800 million by issuing convertible notes.
King reportedly told the conference that if his share price rose, noteholders would convert their holdings into shares, thereby diluting the holdings of Flight Center investors.
Whereas, if the stock price drops, bondholders will not convert their bonds and the company will be faced with a bill.
If King’s prediction comes true, it could leave the Flight Center stock with no possibility of growth or setbacks.
According to the latest data, 13.7% of the company’s shares are already short.
And it’s not just Flight Center’s finances and the future share price that King has challenged. He is also concerned about the business model of the company.
Will Flight Center be profitable after COVID?
When the pandemic hit, Flight Center began to raise capital and cut costs. This saw the company close more than half of its brick and mortar stores.
King believes the company will struggle to generate the revenue it made before COVID-19 in the future due to the closures.
Also, he might not get the kind of incentives he uses in directing travelers’ business to airlines.
King says airlines are increasingly pushing customers to book direct, thereby bypassing the Flight Center commission. the australian quoted him saying:
The company was already facing many challenges before COVID-19. It has been slower than many other travel agents to migrate to a digital world.
It does a reasonable job, but online travel is much more competitive than Main Street.
Currently, Flight Center’s stock price is 7% higher than it was at the start of 2021. However, it has fallen 42% in the past 5 years.