Holiday retailer

On The Beach is an online retailer providing consumers with beach holiday packages. It acts as a gateway where customers can reach out to suppliers of accommodation and airline tickets through its multiple brands, via online and telephone channels.

So what’s happening with On The Beach shares currently? Well, as I write, they’re trading for 106p. At this time last year, the stock was trading for 358p. This is a 70% drop over a 12-month period.

UK shares have risks

I believe On The Beach shares will come under further pressure in the coming months due to current macroeconomic headwinds. Soaring inflation has created economic volatility including rising prices for a lot of commodities, including essentials such as food and energy. As a by-product, a cost-of-living crisis has emerged in the UK.

With this in mind, I believe On The Beach could suffer a drop-off in sales as people will choose not to book holidays. Instead, they will be focusing on paying for essentials such as food, and trying to heat their homes.

Why I like On The Beach and what I’m doing now

Let’s take a look at some bullish aspects of On The Beach. Firstly, after a couple of tough years due to the pandemic when it reported losses, it has seen demand increase past pre-Covid levels. This has, in turn, strengthened its balance sheet with some impressive results recently. Its interim report, released in May for the six months ended 31 March, made for good reading. Revenue increased by £12m compared to the same period last year, to £52.9m. Losses narrowed from £21.6m to just £7m. Finally, it managed to record a net cash figure of £14.6m and reduce debt to just £3.65m. This all tells me it has enough liquidity to deal with potential stormy waters ahead.

I try to adopt a buy-and-hold approach, similar to the teachings of investing guru Warren Buffett. He once said, “Our favourite holding period is forever”. I believe the current volatility and falling share price is an opportunity to buy shares in a company I believe will recover in the longer term. My stance comes from the fact there is a newfound appreciation for travelling after the pandemic.

Finally, On The Beach shares look decent value for money after the recent share price fall. They currently trade on a trailing 12-month price-to-earnings ratio of just seven.

Overall, I like the look of On The Beach shares. It is one of a number of falling UK shares that have caught my eye in recent months. I will place it on my buy list for the next time I have some funds to invest to boost my holdings.

Recovering travel

On The Beach (LSE:OTB) was battered during the pandemic as demand for holidays understandably dried up. In the past month, however, the shares are up 25%. At the time of writing, they’re trading at 118p.

For the years ended September, in 2020 and 2021, the company reported pre-tax losses of £46.3m and £36.7m. While this shows some improvement, it has still been a very difficult period for the business.

However, for the six months to 31 March, group revenue grew to £52.9m, up from £12m for the same period in 2021. 

Over that time, pre-tax losses also narrowed from £21.6m to £7m. It’s clearly benefiting from more holiday bookings and the relaxation of international pandemic restrictions.

With cash of £14.6m and debt of £3.65m, the firm should be able to navigate its way through any future pandemic variants, should they arise.  

Strong profit outlook

Next, The Berkeley Group’s (LSE:BKG) shares are down 14% in the last three months and currently trade at 3,441p.

For the 12 months to 30 April, pre-tax profit climbed to over £550m, with revenue up 6.6% and earnings per share (EPS) surging over 23%.

It’s worth noting, however, that this growth isn’t guaranteed in the future.

The upmarket housebuilding firm has forecast that profits will continue to increase over the next three years. The value of Berkeley’s land portfolio has also grown over the past year.

Despite this, the company’s cash balance fell by £859m to £269m. There are also worries that rising interest rates will ultimately deter potential homeowners from purchasing, because mortgages will probably become more expensive. This could lead to a slowdown in the housing market more generally.

Hitting calmer waters?

Finally, Carnival (LSE:CCL) shares are down almost 50% in the last six months, and trade at 708p.

The cruise firm had a tough time during the pandemic. For the years ended November, in 2020 and 2021, pre-tax losses came in at $10.2bn and $9.5bn. 

Net debt also spiralled during that time, and currently sits at over $36bn. The business has confirmed it will seek to raise $1bn through the issuance of additional equity. This may be used to pay down some of Carnival’s near-term debt.

On the other hand, occupancy levels hit 69% during the three months to 31 May. In the previous quarter, they were 54%. Additionally, customer deposits rose from $3.7bn to $5.1bn over the same period and booking volumes nearly doubled. 

While the underlying financials are still not as solid as I would like to see, demand appears to be recovering.

Overall, these three firms all face challenges, but there are enough exciting prospects in each to favour investing in them. As such, I’ll be adding all three businesses to my portfolio soon.

But this has led to several bargains on the index. On The Beach (LSE: OTB), a travel retailer that has faced significant disruption since the pandemic, is one of my personal favourites at the moment. This is especially true after the company has dropped over 11% in the past month, and nearly 50% in the past year. In my opinion, this has led to the FTSE 250 stock being far too beaten down. 

Recent results 

On Tuesday, OTB released its half-year trading update. Overall, there were many positive signs. For example, monthly booked sales, which is the total transaction value of holidays booked every month before cancellations and adjustments, totalled £385.8m. This was 6% up on the same period in 2019, which was pre-Covid. This demonstrates that travel has rebounded. 

Further, revenues were able to rise over 1,000% year-on-year to £52.9m. This follows the relaxation of restrictions on travel from the UK to other European holiday destinations in January 2022. However, revenues were still down around 17% from the same period in 2019, demonstrating that travel has not fully recovered.  

What about the future? 

There were both negatives and positives to take from a forward-looking standpoint. From a positive perspective, the past few months have seen further improvements. For example, at the start of the second half, sales were 33% higher than pre-Covid levels. Therefore, I feel H2 revenues can recover further, and will hopefully exceed 2019 levels. 

On the other hand, the company struck a cautious tone about the consumer environment. This is due to the impact of inflation, which has contributed to a cost-of-living crisis. Unfortunately, this could reduce the number of people wanting to go on holiday, a factor that would likely see the OTB share price sink further. This was the principal reason why the share price dropped over 10% after the results. 

What’s next for this stock? 

The stock has been significantly beaten down over the past few months. However, the company is in a far better position than it was during the pandemic. Further, as the company is targeting the premium end of the market, I believe it should be able to mitigate the impacts of the cost-of-living crisis well, as its consumers are more resilient to price hikes. 

This means that I’ll continue to add OTB shares to my portfolio at its current price. Its upside potential just seems too strong for me to ignore. 

Today, I’m focusing on one share that I think has the potential to perform better than most in 2022. It might not, of course, but I do think it’s possible.

A FTSE stock that’s ready to fly

Online travel operator On the Beach (LSE: OTB) probably wasn’t the stock some would expect me to talk about in these terms and I understand why. The Manchester-based business has endured a tough couple of years thanks to the pandemic. I won’t include any figures on trading here. Let’s just say they haven’t been great. 

Having said this, there are a few reasons why I think the shares could finally be ready to fly.

First, we appear to be entering the final stages of Covid-19. As confidence returns (and restrictions become a distant memory both at home and abroad), more of us will feel confident enough to start booking holidays. Goodness knows, the demand is there. Yes, that will take some time to filter through to OTB’s numbers, but analysts are already expecting earnings per share growth of 126% in FY23 (beginning this October). Growth that strong could light a fire under the share price.

Second, On the Beach’s asset-light business plan means it can be far more nimble than larger industry rivals. If it needs to prioritise marketing particular destinations to gain the full benefit of the post-pandemic recovery, it can do so quickly. To me, that gives it an advantage over its travel stock peers.

Third, On the Beach’s finances are arguably in a better state than other companies in the sector. In its annual report, it said it “enters the new financial year well-funded to successfully and sustainably grow market share“.

Clearly, the probability of On the Beach soaring in price depends greatly on it releasing better-than-expected updates. However, a sizeable gain is not unrealistic for a business of its size. As I write, OTB shares are worth less than half the value they hit in April 2018. The market cap at Friday’s close was £475m. While the past is no reliable guide to the future, it shows that in a travel-friendly world, the share price can be much higher.

Nothing’s guaranteed

But I’ve already mentioned that luck plays a role. Any stock that’s attractive on paper can perform disastrously events conspire against it. Another Covid-19 variant, industrial action, terrorism in a popular destination — all of these can dent holiday bookings. And that would keep OTB’s share price grounded.

Plus there’s the possibility the general market malaise we’ve seen in January may continue for longer than anyone expects. This will prove a drag on most share prices. This is why spreading my cash between quality growth stocks and funds is an essential part of my investing strategy.

Optimistic holder

Yet I do think there’s a real chance of On the Beach finally rewarding this patient, battle-scarred investor in 2022. Exploding in value in under a year is a challenge, but I think the odds might be turning in this FTSE stock’s favour.

It remains my favourite Covid-19 recovery play. 

UK shares for growth 

4imprint (LSE: FOUR) is a direct marketer of promotional products. These are the promotional products companies give to their clients, such as branded pens, water bottles and T-shirts. 

This market might not seem all that exciting, but it is big business. 4imprint has multiplied over the past five years, capitalising on its position in the market and re-investing for growth. Sales nearly doubled between 2016 and 2020, although they fell 50% when the pandemic hit. 

Going forward, sales could remain under pressure if events and marketing activity does not return to pre-pandemic levels. This is probably the most considerable risk to the group’s growth right now. 

Despite this potential headwind, City analysts think the company’s earnings could rebound to pre-pandemic levels by 2023. From there, the group will be able to build on its position to expand its footprint further, suggesting its outlook will only improve over the next few years. 

Near collapse

If 4imprint struggled during the pandemic, On The Beach (LSE: OTB) had a near-death experience. The company has been haemorrhaging money for the past two years, relying on investors to keep the lights on. 

With the international travel market beginning to reopen, it looks as if the outlook for the business is starting to improve. City analysts believe the business will return to profit in its current financial year and build on this growth in fiscal 2023. 

Of course, there is no guarantee this growth will materialise. Challenges the corporation will face include additional coronavirus-induced restrictions and the rising cost of living. Higher prices could also lead to a delay in spending. 

Still, even considering these headwinds, I think the company’s outlook will improve significantly over the next two years. That is why I would add it to my portfolio of UK shares with growth potential. 

Charging ahead

As the two firms above struggling with the pandemic, Bloomsbury Publishing (LSE: BMY) knocked it out of the park. Profits have increased by around 50% since 2020 as the demand for books has surged. 

The company is planning to build on this growth in the years ahead. It is using its pandemic windfall to fund new growth initiatives, such as its online learning platform. It is also continually hunting for new authors to add to its catalogue of books. 

This is a bit of a hit and miss process. The enterprise’s most successful association has been the Harry Potter franchise, but there is no guarantee it will find another blockbuster. A string of poor decisions could leave the company struggling with declining sales and profits. 

Even considering this challenge, I am excited by the group’s prospects. It has a cash-rich balance sheet with no debt and supports a dividend yield of 2.8%. Considering these qualities, I think this is one of the best UK shares to own now. 

Capturing market share

On The Beach (LSE: OTB) has struggled during the pandemic, as the number of people going on holiday has plummeted. As such, the company has continually posted losses, and over the past six months, the share price has fallen 35%. Over the past year, it has fallen around 15%.

The shares have suffered particularly badly recently, as the company warned investors that it experienced suppressed trading in the second half of the financial year 2021. This was because the company extended its off-sale period to 31 August 2021, meaning that customers were unable to book their summer holiday on OTB. This was done to protect customer goodwill and ensure that holidays were not cancelled. It is hoped that this will allow OTB to capture more market share in the long term. Even so, it is now expected that the full-year results in December will be pretty dreadful.

Despite this, I feel that this is now factored into the OTB share price and the future of this FTSE 250 stock is starting to look brighter. Indeed, there has been an increase in bookings in the last few weeks of the financial year. This was especially due to the company’s ‘Free Covid Tests’ promotion and a further softening of government restrictions. For the next financial year, I believe that the online travel agent may be able to re-reach profitability. As such, I’d happily buy more OTB shares. 

Another FTSE 250 travel stock

National Express (LSE: NEX) is the other FTSE 250 stock that particularly piques my attention at the moment. While the firm is still struggling due to the pandemic, it has seen a major performance improvement over the past few months. Indeed, in the Q3 trading update, revenues were up to 83% on the same period in 2019.

Furthermore, in the half-year trading update, while the group posted an operating loss of £24.1m, parts of the business have managed to re-reach profitability. This included ALSA (in Spain) and the company’s operations in North America. As the UK Coach service is now operating at 56% of pre-Covid levels, up from 37% at the end of June, it’s hoped that this part of the business can reach profitability soon as well.

There is also the possibility of a merger with Stagecoach, which would hopefully lead to cost synergies and significant growth. If this deal can be completed, I reckon the National Express share price could soar. Nonetheless, there is the risk that this deal will not go through, and this may disappoint investors. Alongside the continual risks caused by the pandemic, this must be considered.

Even so, I feel that NEX shares offer significant upside potential. This is especially true after the shares have fallen around 20% over the past six months. They are up around 4% over the past year. This means that I may add more of this FTSE 250 stock to my portfolio.

What’s Ryanair up to?

Ryanair has a history of tension with third-party flight bookers. The firm generates a large chunk of its income from selling additional services like hotel bookings and priority boarding. If a ticket is booked through a package holiday dealer rather than directly, the company looses the opportunity to further monetise its passengers. This is likely one of the primary reasons the group encourages people to avoid online travel agents entirely.

Ryanair has also previously accused online travel agents of using fake information and virtual credit cards to complete its bookings. This allegation has been vehemently denied by On The Beach in its new lawsuit. It also states that Ryanair is abusing its dominant position in the short-haul flight market. Beyond blocking bookings, the firm claims that Ryanair has failed to provide refunds for cancelled flights during the pandemic. This has triggered the travel agent to suffer a £48.7m loss that it calls “unlawful”.

Ryanair has yet to present its side of the argument and hasn’t commented on any of the accusations made by On The Beach.

On The Beach claims that Ryanair has been making it harder to books seats for its customers, and putting onerous check-in procedures in their way. I can see why Ryanair would prefer to sell its seats directly, as the budget airline can sell extra holiday services at the time of booking. It also gets to retain more personal details for use in future marketing.

Ryanair encourages fliers to book directly. They should, the company claims, avoid price mark-ups that way. Ryanair has also accused online travel agents of obfuscating customer details to keep them away from its marketing and sales efforts. On The Beach, for its part, has denied any such behaviour.

In an industry with often razor-thin margins, jostling for customers is very much part of the business. But when it comes to legal action, I wonder if it could harm both sets of shareholders.

In the past few days, both share prices had been falling, after a decent run in 2021. The Ryanair share price is up 25% over the past 12 months. On The Beach shares, meanwhile, have soared 60% in the same period.

On The Beach ahead of Ryanair

Over five years, On The Beach is ahead with a 52% gain compared to Ryanair’s 28%. But it’s been a rocky ride. On The Beach shares stand at 348p as I write, up 4.5% on the day. But back in April 2018, they were going for around 640p.

The Covid-19 pandemic gave On The Beach a good kicking. But prior to that, the stock had already been declining. Yet again, I’m seeing that old familiar growth stock story. Investors pile in during the early days, pushing the shares to an overvalued peak. It can take a few years before reality sets in, and that reality is value-based.

So what’s the value of On The Beach now, and would I buy? Well, Ryanair first. Ryanair is definitely a no for me, and that’s saying nothing about the company itself.

Super competitive

I just don’t invest in super-competitive industries in which the participants are at the mercy of external factors not under their control. Ryanair traditionally shows poorly in annual customer satisfaction surveys, yet even that makes little difference to its performance. When it comes to budget airlines, just about the only thing people care about is price. And to-the-bone price cutting is not something I want to invest in.

I prefer what I see in On The Beach. The company recorded a loss in pandemic-hit 2020, and again for the first half of 2021. But if we get back to 2019 profit levels, the current share price would suggest a P/E of about 16. I think the next year or two will still be risky for investing in the travel industry, and I’m still very wary of the intense competition. But I think On The Beach looks decent value now.

“Exceptional trading”

Shares in ten-pin bowling and mini-golf operator Hollywood Bowl (LSE: BOWL) breached the 300p barrier back in January 2020. As markets opened this morning, they changed hands for only 239p. Nevertheless, today’s update suggests this gap might soon be closed.

From reopening its doors on 17 May to the end of September, BOWL enjoyed “exceptional trading“. Like-for-like revenue grew by 29% from that achieved in (pre-Covid) FY19. To me, that’s clear evidence management’s delivering, even though trading has likely been helped by restrictions on foreign travel. 

I suspect this form will continue. After all, families will be looking for relatively cheap forms of indoor entertainment as the cold weather arrives. In preparation, BOWL has been busy refurbishing various sites. Looking further ahead, it’s planning to open 14-18 new centres by 2024.

No guarantees

This isn’t to say Hollywood Bowl is a slam-dunk investment from here. We’re already being warned that Covid-19 infection levels, assisted by the arrival of the flu season, could spike again. Even if restrictions aren’t brought back in, visitor numbers and spending could drop. Investors might also speculate that the pent-up demand for affordable activities like bowling has now passed. 

I think the current valuation takes this into account. On less than 17 times forecast earnings prior to today’s statement, BOWL shares weren’t screamingly cheap. Then again, nor were they seriously expensive, especially considering the £30m of net cash on the balance sheet.  

Of course, the time to strike was last year. Had I snapped up the stock 12 months ago (and just prior to the announcement of effective vaccines), I’d be sitting on a gain of around 70% today.

No matter. Based on today’s positive statement, I’d be happy to add the shares to my portfolio.   

On the way back?

Another growth stock I think should continue to recover well is online package holiday operator On the Beach (LSE: OTB). After wobbling like everything else recently, its shares are back in form today. This follows news that the number of countries on the UK Covid travel red list will now be dropped from 54 to seven.  

Having started building a position in this company earlier in 2021, it’s a case of ‘so far, so good’ for my investment. Notwithstanding this, I don’t pretend there won’t be challenges ahead. Like Hollywood Bowl, the company could be impacted by the re-introduction of restrictions should infection levels rise.

Regardless, travel will always be a hugely competitive space and OTB’s apparent lack of economic moat is something I was conscious of when buying over the summer. 

These concerns aside, I continue to be bullish on this UK growth stock. With its asset-light business model and very limited debt, it remains one of the best ways of playing the post-pandemic recovery that I can find. 

With the shares still roughly 40% below the all-time high of 615p set back in 2018, I’m hoping to at least double my money. As always, patience is required. Full-year numbers are due in December.

None of this has stopped me from continuing to buy growth stocks for my own portfolio though.

Contrarian growth stock

After sitting on the sidelines for a while, I’ve finally grabbed the bull by the horns and snapped up shares of online holiday firm On the Beach (LSE: OTB).

Devoid of the high fixed costs endured by larger peers such as TUI, OTB’s flexible, online-only business model ensures it has minimal cash burn while travel restrictions remain in place. A recent £26m share placing also gives the company sufficient financial firepower for a big marketing push when rules are relaxed and demand for holidays explodes.

This isn’t to say that taking a position now is without risk. Those restrictions will likely be in place for a while yet. Moreover, the barriers to entry into this market aren’t particularly high.

Nevertheless, the progress of vaccination programmes leads me to think that the risk/reward trade-off is far better than it used to be. OTB’s share price is also down roughly 40% since March. This gives me what I feel to be a decent margin of safety. I’ll be continuing to drip-feed my money into this growth stock over the next few months. 

Buying the dip

I simply couldn’t finish July without adding to my stake in fast-fashion giant Boohoo (LSE: BOO). A bumpy ride over the last month, not helped by a poorly-received update from industry peer ASOS, looks to be another opportunity to acquire this growth stock at a great price.

The 20% fall in Boohoo’s value over the last six months leaves its shares changing hands for less than 26 times earnings. I think that could prove to be a steal once the company puts its ESG (Environmental, Social, Governance) concerns to bed. The negative publicity will hopefully lessen as BOO demonstrates what it’s done to put things right with its supply chain.

Sure, there are other potential headwinds. Confirmation of an online sales tax could send the shares lower, as might a simple lack of news over the next month. However, some knockout interim numbers in September may arrest this fall. Evidence that recent acquisitions are bearing fruit would provide another boost. 

Investing megatrend

My last buy this month has actually been an investment trust rather than a single company stock.

I began buying Biotech Growth Trust (LSE: BIOG) in April. Unfortunately, its shares have drifted lower since then. Reasons could include the ongoing rotation from growth stocks into those appearing to offer more value. There might also be a belief that healthcare-related funds have had their time in the sun.

Notwithstanding this, I’m confident BIOG’s managers — many of whom are medically trained — know what they’re doing. An annualised return of 17% over the last five years is far better than the trust’s benchmark. Then again, this has been at the expense of greater volatility, As such, those with weak stomachs need not apply.

Given the rate of technological progress, this area could be one of the investment themes for years. I think a diversified trust like BIOG is the best way to play it.