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Many companies have had a fantastic 2023, but many of them are high-flying technology companies. However, since August, shares of On the beach (LSE:OTB) have nearly doubled in recent months after it reported its “The best summer ever”. So is this FTSE company potentially a real winner in the travel sector, as some of its peers continue to struggle in the wake of the pandemic?
That sudden rebound
The first half of 2023 was nothing special for the company as the management team tried to get back on track after a difficult few years. But when it reported its results in September, it was clear that the business was performing much better than the market expected. This has led to a steady rebound in the second half of the year.
With revenues of £1.1bn, up 26% year-on-year, profits soared an impressive 66% to £23.6m in the year to 30 September. The company also announced the reinstatement of its dividend beginning in full year 2024, reflecting its strong cash reserves and financial health. Needless to say, investors have liked what they've seen so far.
But with aggressive rallies like this, buying can be complicated. There is clearly still a cost of living crisis in the UK, and investors may wonder whether traveling will continue to be a priority for many people struggling to pay the bills. This can mean that the stock price drops again at the slightest bit of bad news.
However, analysts referring to recent challenges in the luxury goods market due to cost of living pressures have noted that this trend has not yet impacted the premium vacation segment. And holidays in general continue to be in demand. As a result, the future still looks good for the company and it continues to report strong forward bookings, with sustained demand for bookings with both short and long lead times.
Valuation
You would never want to buy a company right when the rally ends. However, the company's valuation suggests there may be more room to grow. A discounted cash flow calculation, which calculates an approximate fair price, also suggests that the share price of £1.50 is approximately 66% below the fair value of £4.35. The stock's price-to-earnings (P/E) ratio of 23.5 times is quite close to the UK travel sector average of 26.4 times, so you wouldn't be too afraid to pick up the stock at this price.
However, with 29.5% growth in earnings expected, FTSE investors may still like this one if the share price continues to rise.
No action is risk-free
For a company that is doing so well in the sector and has no debt, it largely controls its own destiny. However, there is always the possibility that the economy could take a negative turn, which will affect the demand for premium travel. However, I suspect On the Beach is much better positioned than many to weather any short-term disruption.
What is the verdict?
I like what I see with this company. Not many FTSE companies have so many positive areas in their business, particularly the lack of debt and strong growth figures. I'm normally cautious when it comes to companies that have experienced such growth in a short period, but I'll take a small position at the first opportunity.
