After markets had rallied strongly since the lows in March, the FTSE 250 was down around 6.7% last week. One of the most affected shares was travel retailer On the Beach (LSE: OTB). After a monumental rise of 182% since the middle of March, this growth share was down over 16% last week. While some may believe this signals the end of its recovery, I think it offers a perfect time for investors to capitalise on its recent fall.
A very healthy growth share
A market downturn will often disproportionately affect growth shares. It’s therefore essential that On the Beach has a healthy balance sheet, as this should ensure a swift recovery. Fortunately, the robust balance sheet is one of its main attractions. Firstly, it has a minimal amount of debt. Unlike competitors such as TUI, which has over £2bn in debt, the lack of debt should aid recovery. It also has sufficient cash reserves. This includes £75m in revolving credit facilities, and a recent £67m raised via the sale of new shares. Not only should this help survival, but it places the firm in a better position to “capitalise on the multiple opportunities that these market conditions are likely to present”.
Different to its competitors
I particularly like this growth share over its competitors because of its uniqueness. For example, unlike other tour operators and airlines, customer funds are held in a trust account. As a result, funds are not used for working capital, and therefore, it’s easy for refunds to be processed. This is especially useful at the moment, as it should help limit damage to the company. On the Beach also doesn’t own any planes or shops. This subsequently lowers capital expenditures and offers the growth share further flexibility. It also means that its monthly cash burn at the moment is less than £2m. In addition, On the Beach has never paid a significant dividend. Although this may put off income investors, it has meant that profits have been reinvested into the company. This often results in further growth. The dividend yielded around 1% before being cancelled due to the pandemic.
The final reason I like this company is because of its strong management. CEO Simon Cooper founded the firm in 2004 and has since led the business through its IPO in 2015 and entry into the FTSE 250 in 2018. He also owns 7.45% of the business, which I feel is always a good sign. The rest of the board has also demonstrated trust in the firm, as shown by the amount of insider buying recently. Just last month, nine different insiders bought shares. In the same period, no insiders sold any. This implies optimism within the business. I share this optimism and would certainly capitalise on the recent dip and buy this growth share today.
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Stuart Blair owns shares in On the Beach. The Motley Fool UK has recommended On The Beach. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.