"Sluggish profitability" has led analysts to downgrade their expectations of On The Beach's target share price after the company revealed its first-half results.
The Manchester business reported pre-tax losses of £6m in the six months to the end of March this year on a revenue of £73.2m. Its losses were down from £7m in the same period in 2022 while its revenue had grown from £52.9m.
On The Beach's shares fell by over 12% to 111.8p after the results were announced.
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The company's shares have been gradually falling since its recent high of 189.6p in January.
Now analysts at Panmure Gordon have downgraded their target price by more than a quarter from 160p to 126p.
In a briefing note issued to investors, Lena Thakkar of Panmure Gordon said: "This revenue momentum was driven by volume and price as we have seen across the sector.
"But to achieve it, OTB has had to invest more in marketing, customer perks and other costs.
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"Profitability figures are therefore less positive with OTB segment EBITDA margins down 1% year on year and adjusted operating profit around flat.
"For the main OTB segment, the business is having to invest heavily for its bookings.
"Total marketing at 53% of revenue is at a high level given the growth in revenues, albeit some of the investment is H1 weighted.
"Overheads have also had an impact, up £4m in the half, due to additional credit card, technology, staffing and general cost inflation.
"Whilst we expect some of these costs to ease in the coming quarters, we do not forecast OTB to return to previous margin levels in the foreseeable future.
"We have reduced our estimates to reflect these results and our expectation of weaker margins.
"Although the stock has derated, given the negative earnings momentum and structural challenges we maintain a hold rating."
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In a statement issued to the London Stock Exchange, On The Beach's chief executive Simon Cooper said: "I am pleased with the group's strong performance in the first half, delivering a record group booked TTV and group revenue performance, up 28% and 38% respectively, driven by increases in both volume of bookings and the average value of holidays sold.
"This was supported by our largest ever offline marketing campaign, 'The most wonderful time of the year', which included sponsorship of ITV's Masked Singer and the Magic Radio breakfast show.
"This marketing effort also delivered the group's highest ever top three brand consideration score, despite a more aggressive competitive environment.
"The travel sector continues to recover post-pandemic and the group has experienced significant increases in demand for its holiday product, particularly the Premium 5* offer.
"This segment represents a substantial growth area and we continue to see a significant incremental revenue opportunity to be gained in the medium term by attracting these customers to the brand.
"Our long haul offer also continues to grow and we have added new airlines and increased the number of destinations we can offer to our customers.
"We continued to invest in our technology capabilities including a migration to the cloud in H1 to allow greater speed of developments and increased security.
"These investments will enable the group to drive continued growth in both the core business and the exciting expansion opportunities.
"In what will be my last half-year results as CEO before handing over the reins to Shaun on 30 June, I am pleased with the group's performance in the first half and I am confident that the right building blocks are in place for Shaun and the team to continue to deliver growth across the business and I remain excited about both the near term and longer term opportunities for On the Beach."
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