The TUI share price is rising: here’s what I’d like to do

The TUI share price is up about 140% in the past year. Will the trend continue? Royston Roche takes a deep dive into the stock.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The TUI AG (LSE: TUI) share price rose about 140% in the past year. It started on an upward movement since the successful vaccination drive began. Recently, the president of the European Commission announced that fully vaccinated Americans would be allowed to travel this summer. This is a big boost to travel stocks.

So, I would like to look further at the stock to see if it’s the right time to buy.

The bull case 

It’s been at least a year since most people have been on a long holiday. I expect strong demand when the tourism sector fully opens. Companies like TUI will be the beneficiary of this trend. The vaccination drive in many countries is progressing in the right direction. The European Union had imposed a travel ban last year on most foreigners. The recent news allowing Americans who are fully vaccinated is a big positive since more US tourists visit the European Union than any other country outside the bloc.

The company is a leading player in the tourism sector. It operates various businesses including hotels, cruise liners, airlines, online portals and travel agencies. It caters to more than 20m customers. The integrated business model helps to offer its customers the whole value chain in the tourism sector. The company also benefits from cross-selling and promoting its various brands. 

The company has a stable liquidity position at the moment. The successful vaccination in the UK, which is an important market for the company, is a big positive. The company has witnessed strong summer bookings. Average daily bookings were up 70% in January when compared to December.

The bear case for the TUI share price

The company was forced to be bailed out by the German government three times to survive the pandemic. This has increased the debt levels. If the company fails to repay the debt to the government, under the terms of the agreement, it could lead to significant dilution of ownership. 

Even though the company will restart operations this year, it could take a couple of years for the company to reach pre-Covid-19 levels. This was also evident as the company did not provide any financial targets for the year 2021. At the moment, I feel there is a high level of uncertainty. If Covid-19 cases increase then this could lead to a sell off in the TUI shares.

The company had reported a huge loss of €3.1bn for the year 2020. In the most recent results, it had a loss of about €800m. There is no assurance that cash flows will improve this year. The downgrading of its debt by the credit agencies last year has also increased the cost of raising capital for the company. 

Final view

The company’s operations pre-Covid-19 were good. Most countries opening tourism is positive for the company. However, I am not a buyer of the stock today. I am a bit worried about the high debts of the company. Also, there is uncertainty about the company’s revenue this year.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Roche has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »

Investing Articles

I’m expecting my Phoenix Group shares to give me a total return of 25% in 2025!

Phoenix Group shares have had a difficult few months but that doesn't worry Harvey Jones. He loves their 10%+ yield…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

14.5bn reasons why I think the Legal & General share price is at least 11% undervalued

According to our writer, the Legal & General share price doesn’t appear to reflect the underlying profitability of the business. 

Read more »