Will the TUI share price ever return to pre-pandemic levels?

Last week, the TUI (LSE: TUI) share price was changing hands for around 330p. This is approximately a third of its pre-pandemic level. 

Looking at the stock price in isolation, this seems cheap. But a company’s stock price says very little about its underlying financial situation. That’s what really matters in trying to determine if an investment is cheap or not. 

Is the TUI share price cheap?

At this point in time, I think it is quite difficult to tell what the future holds for the TUI share price. 

On the one hand, some economists predict that when the world starts to open up again, consumers will splash the cash. This could lead to a substantial increase in sales and profitability at the group. A sudden rush of holidaymakers looking for deals may also allow the business to raise prices if demand exceeds supply. As one of the world’s largest holiday companies, TUI is well-positioned to capitalise on this boom, if it emerges. 

On the other hand, the pandemic has now been going on for a year. Vaccines offer clear hope for the future, but it could be another year before countries become confident enough to open their borders. That would mean yet another year of disruption for the company, which has already been bailed out three times by the German government. If the travel market remains closed, it will place additional stress on the group’s balance sheet, which it cannot really afford. 

These challenges make it difficult for me to value the share price. Looking at City earnings estimates for the group for the next two years can provide a benchmark. Analysts have pencilled in a potential profit of €371m for the organisation for 2022, which translates into earnings per share of €0.27. At current prices, that puts the stock on a forward price-to-earnings (P/E) multiple of 14. That’s not particularly expensive, although it’s not incredibly cheap either.

What’s more, there’s a lot of uncertainty about whether or not the business will actually be able to hit this target. To do so, it would have to generate sales of nearly €17bn. At this point in time, I think that looks like a stretch. 

Risk vs reward

The TUI share price is currently shrouded in an incredible amount of uncertainty. If the pandemic pressures on the business start to ease this year, it could return to growth in 2022. That’s the best-case scenario, I feel, and could represent an opportunity for investors. In the worst-case scenario, however, countries will keep their borders closed and travel will remain limited. That could put the company back in a precarious financial position. 

Therefore, considering the challenges the business faces and the high level of uncertainty in the travel industry, I won’t buy the stock for my portfolio any time soon. I think there are plenty of other companies out there that have stronger balance sheets and more control over their own futures.