I think this FTSE 100 stock is high risk, especially in the current market slump

This high risk stock may be one to avoid at this time.

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.

Leisure, travel, and tourism is a risky business. It can be a very competitive and saturated market. There are also many external factors which can affect the success of such businesses. Fuel prices are usually a major talking point for airlines.

Of course, the most significant external factor currently is the global pandemic. 

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Coronavirus is causing day-to-day life to grind to halt, which is having a huge impact on the travel industry. Airlines are grounded, hotels are closed, and travel agencies are no longer taking bookings. With entire countries in lockdown and social distancing the current advice, the short-term prospects of travel companies aren’t positive.

TUI Travel (LSE:TUI) is one of the companies affected by the pandemic. The largest leisure, travel, and tourism company in the world, has taken a sizeable hit, like many of its counterparts.

In light of the recent events, TUI announced that 10,000 employees will have their salaries cut by up to 50%. The recent market crash has caused an approximate 70% decrease in the share price. 

Performance and recent events

Prior to the market crash and government lockdowns, early February saw TUI report a strong first quarter of trading. The three months to 31 December saw a 7.7% increase in turnover to €3.85bn as it benefitted from the collapse of main rival Thomas Cook. 

It is worth remembering that Thomas Cook’s market share in the package holiday market was a whopping 30%. This gaping hole created a vacuum that TUI and others frantically attempted to fill.  

TUI’s markets & airlines division in particular performed strongly with an 8% rise in revenue having capitalised on a surge of customers in the UK especially. This helped TUI shake off another €45m hit from the continued grounding of the Boeing 737 MAX.

What also caught the eye for investors in this update was a 14% rise in summer bookings compared to the same quarter last year. CEO Fritz Joussen’s comments displayed his surprise at such a turn of events saying that he “cannot remember any start in the year where that has happened”. Fast forward approximately five weeks and his company is facing another unparalleled event. 

Crunching the numbers & next steps

TUI has experienced some intriguing results, although in an industry I would usually stay away from when it comes to investment. Profit has increased for the previous three financial years, which is always a positive sign. Dividend per share has also increased year on year for the previous four years. 

The current price-to-earnings ratio sits at just under 25 compared to the FTSE 100 ratio of 12. Share price generally over the previous year, excluding this period of uncertainty, saw an increase of approximately 25%. 

That said, I do tend to stay away from airlines and travel operators. In the current climate I will continue to do so. I feel as though this pandemic will continue to challenge an already tricky industry to navigate, even if the tide does turn soon.

As always, I do not totally discount any stock. I’ll continue to keep an eye on TUI, and if an opportunity arises I would consider it. For the time being, though, it’s a no from me.

More on Investing Articles

Young female analyst working at her desk in the office
Investing Articles

Should I buy Amazon shares?

Amazon has a strong web services business and our author thinks its online retail operations are underappreciated. So should he…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

How I’d invest a Stocks & Shares ISA today for dividend income in the future

Our writer has been investing his Stocks and Shares ISA with the aim of building income streams for the long…

Read more »

Passive and Active: text from letters of the wooden alphabet on a green chalk board
Investing Articles

2 undervalued passive income stocks I’d buy today with £1,000

Falling stock prices are pushing up dividend yields. As a result, our author is looking for undervalued passive income stocks…

Read more »

Close-up of British bank notes
Investing Articles

2 cheap dividend shares I’d buy in a heartbeat

Our writer picks a pair of FTSE 100 dividend shares he would consider for his portfolio, that he thinks look…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

With £500, I’d use the Warren Buffett method to find cheap shares

The legendary investor Warren Buffett has become a billionaire by following some key investment principles. Our writer explains why he…

Read more »

Man in a clothing store in a medical mask because of a coronovirus.
Investing Articles

Down 81%, are boohoo shares set for an explosive comeback?

boohoo shares have been falling rapidly. But could interest from a billion-dollar hedge fund cause a turnaround in 2022?

Read more »

Smartly dressed middle-aged black gentleman working at his desk
Investing Articles

The Tullow Oil (TLW) share price jumps after losses! Is now the time to buy?

The Tullow Oil (TLW) share price ticked upwards on Thursday morning after falling nearly 30% over the last month. So,…

Read more »

Female analyst sat at desk looking at pie charts on paper
Investing Articles

Is the Lloyds share price about to dip below 40p?

The Lloyds share price has been trading below 50p for the better part of the year. But could the stock…

Read more »