Over the long term, the average annual growth rate for stocks is around 8%. Naturally, growth stocks help to pull this average higher. Usually such companies are rapidly increasing revenue, with the share price rallying hard to keep up with the improving outlook. In some cases, I can achieve high returns (even doubling my money) in a year or so. Here’s one stock that I think fits this bill right now.
A good idea
The company is TUI AG (LSE:TUI). The package holiday operator struggled during the pandemic, understandably more than most. The problem here was that it caters for everything from the flights to the hotels. So even though specific airline operators struggled, or hotel brands had a bad time, TUI was hit on all fronts.
In the 2020 and 2021 financial years, the business lost over €5.5bn. The share price naturally fell and is down 70% over three years and 42% over the past year. It currently trades at 146p.
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Yet I think this has the potential to double my money. It has already risen by 31% in just the past three months. In the December Q4 update, it announced that “all segments [are] reporting a positive underlying EBIT for the first time post-pandemic.”
This is huge news, and really shows that the company has finally turned a corner from the pandemic. Q4 customer numbers were at 93% of the full-year 2019 levels. I’d expect this to be above 100% as we go into the summer.
Potential to reach 2019 levels
My thinking around the share price being able to double comes from the assumption that it can reach or exceed the 2019 performance.
In 2019, the business made an operating profit of €445m. In 2022, it made €326m. If this can climb in 2023 to €450m-€500m, I’d expect the share price to reach similar levels to where it traded in 2019 (400p-500p). From the current price, doubling would only take it to around 300p. So my estimate here is actually being conservative in nature.
The main risk to my view would come from the high debt load and the cost of servicing this debt. The net interest charge in 2022 was €474m, up from €52m in 2019. It’s a sizeable shift, and although the business is taking steps to reduce the burden, is still a negative drag on net profit.
A growth stock worth remembering
I call TUI a ‘forgotten’ growth stock because I feel many ignore it as it doesn’t quite fit what they’re seeking. For those wanting exposure to an airline, there are specific stocks for that. It’s the same for cruises, hotels and other offerings that TUI has. I don’t think many look to TUI specifically.
I’m seriously considering adding the share to my portfolio this month, as I feel the company is really starting to make progress. The financial results should support this in Q1 and beyond, at which point I think the share price could take off.
