At the start of September, I wrote a piece about TUI (LSE:TUI). In it, I concluded that as I wasn’t optimistic about the outlook for the travel and tourism sector, I was going to stay away from investing. In the past month, the TUI share price has fallen 10.85%. Over the past year, the stock is down 60%, but it’s up an impressive 5.3% so far today. So where do we go from here?
Short-term movements
To begin with, it’s not just TUI shares that are performing well today. The International Consolidated Airlines share price is up 1.6% with easyJet shares up 1.2%. The sector in general is benefiting from a relief rally after having been on the receiving end of a tough couple of weeks.
This mirrors the broader FTSE 100 and FTSE 250 movements. Since the mini budget, the stock market has moved lower. Concern around the amount of debt needed to fund new tax cuts has led to some ditching stocks and moving to cash as a safe haven.
Another impact of this fear has been the fall in value of the British pound. This has been notable against peers including the euro and US dollar. This is a negative for TUI and the entire industry. If I’m thinking of booking a holiday in Europe but now my pounds are worth considerably less in value, I’m going to find the whole experience significantly more expensive. This would cause me to think about taking a domestic holiday instead, or at least hold off booking anything with TUI for the moment.
As a result, I don’t read too much into the short-term move higher in the share price today. Better investor sentiment might be seen for a couple of days, but it hasn’t changed my longer-term view.
Where I think the TUI share price goes next
At 115p, the share price isn’t too far away from the lows of last week at 101.5p. In turn, these were levels not seen for over a decade. This does make it difficult to analyse because we’re in uncharted territory. It’s not as though I can compare the company versus a couple of years ago when the share price was at a similar level.
The company has been loss-making for the past two years. Therefore, it’s hard to use traditional valuation metrics such as the price-to-earnings ratio so see if it’s undervalued. Clearly, a falling share price should make the valuation more appealing. But unless the finances start to improve, there’s no reason why the value of the business shouldn’t fall further.
In positive news, the business raised significant new capital last year. This should help to prevent any bankruptcy chatter. Further, in the latest trading update from September, the Markets and Airlines division was expected to deliver a profitable quarter, despite the broader summer disruption.
Ultimately, I don’t see any major reason why the stock is set to break out of the downward spiral. Based on the lack of positive conviction, I don’t see value in me buying simply because of the low share price. I think the stock could face further pressure in coming months.