In the turbulent world of travel and tourism, few companies have experienced as dramatic a rollercoaster ride as TUI (LSE:TUI). Once a titan of the industry, the TUI share price has plummeted 73% in the past five years, leaving investors wondering if this fallen giant can ever reclaim its former glory.
What went wrong?
TUI’s a global tourism group headquartered in Germany. From luxurious resorts to cruise ships and package holidays, TUI has its fingers in virtually every pie of the tourism sector. But despite its diversified portfolio, the company’s struggled in recent years.
The numbers paint a stark picture. The TUI share price now sits below €7, a far cry from its heady highs of just a few years ago. Yet, amid this gloomy backdrop, I think there are still a few glimmers of hope that might signal a potential turnaround.
Some areas of optimism
First, let’s address the elephant in the room — profitability. After years of losses, the firm has finally climbed back into the black. Management reported earnings of €509.40m over the trailing 12 months, translating to an earnings per share (EPS) of €1. This return to profitability is a crucial first step on the road to recovery.
Moreover, TUI’s valuation metrics are starting to look intriguing. The company’s currently trading at a price-to-earnings (P/E) ratio of 6.6 times, significantly below many of its peers in the hospitality industry. This suggests TUI might be undervalued, especially considering its brand recognition and market position.
But perhaps the most tantalising metric for potential investors is this. According to a discounted cash flow calculation (DCF), the shares are currently trading at a whopping 47.8% below the estimate of fair value. If this assessment proves accurate, it could mean substantial potential for those willing to weather the turbulence.
Looking ahead, the forecast appears cautiously optimistic. Earnings are projected to grow by 15.23% a year, a respectable clip that could help fuel a share price recovery. However, it’s worth noting that the firm operates in a highly cyclical and volatile industry, subject to external shocks ranging from geopolitical events to public health crises.
Plenty of challenges remain
One significant challenge facing TUI is its debt burden. With a debt-to-equity ratio of 166.2%, the company’s carrying a hefty load that could hamper its ability to invest in growth initiatives or weather future storms. Management’s ability to navigate this high debt level will be crucial to TUI’s long-term recovery prospects.
So will the TUI share price ever recover to its former highs? The honest answer is, it’s complicated. The company’s made significant strides, returning to profitability and showing signs of undervaluation. However, the path to full recovery is fraught with challenges, from high debt levels to the inherent volatility of the tourism industry.
Those with a strong stomach for volatility and a belief in the long-term resilience of global tourism might see an opportunity. However, I feel TUI’s journey back to its glory days will likely be a marathon, not a sprint.
I’ll be putting my money to work elsewhere for now.
This post was originally published on Motley Fool
