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As the last rays of summer sunlight fade and many vacationers reluctantly pack their swimsuits, I turn my attention to TUI (LSE:TUI) stock price. Is Europe’s travel titan set to hibernate, or could there be an opportunity here? Let’s take a closer look.
A challenging few years
The company has had a roller-coaster ride, worthy of its own theme park, over the past few years. Over the past year, shares have risen 6.7%. But let’s remember that this is just a soft fix for what has been a meltdown of staggering proportions. Since 2019, shares are down 78%.
Numbers
Despite disappointing performance in the market, the summer of 2024 was a breath of fresh air for the company. After returning to profitability in 2023, annual revenue grew last year by 23% to a whopping €22.22bn. At the same time, as many firms in the travel and tourism sector saw a drop in revenue, profits reached a respectable €539.3m.
With a price-to-earnings (P/E) ratio of just 5.4 times, there is a respectable gap between the company and the industry benchmark, which sits at over 27.3 times. I think there could be a good opportunity here if the market decides that the shares are worth keeping up with the company’s performance.
There’s a lot of room for growth if that’s the case. The discounted cash flow (DCF) calculation suggests 74% growth before the fair value ratio is reached. With annual revenue forecast to grow by a healthy 15.83% over the next five years, analysts are predicting a 12-month price target of 739.79p, suggesting potential growth of 31.28%.
Of course, this is not guaranteed. I suspect that there is a good reason that the market is not sure that these predictions will be met.
It’s a tricky industry
Let’s consider the possible chaos. The company’s debt-to-equity ratio stands at 154.8%. This $1.9bn debt could be TUI’s personal Everest if the economic winds change direction, especially when interest rates are at their lowest in decades.
As many of us know, the travel industry is notoriously fickle, subject to everything from political differences to the whims of Mother Nature. One volcanic eruption or a global crisis, and TUI’s recovery effort could go up in smoke.
An uncertain future
As we say goodbye to the summer of 2024, TUI stands at an exciting time. On the other hand, the path to continued stability and growth is ringing, leading to sun-drenched profits and happy shareholders. On the other hand, a rocky road of possible obstacles and challenges is approaching, which threatens to send the share price down.
To me, TUI’s pricing looks like a good opportunity. Of course, this sector is challenging, and the balance sheet of the company is not very good. However, since there are many opportunities for growth, I will be taking a smaller position in the next opportunity.
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