The TUI share price has delivered a 42% return in three months. Should I invest?

The TUI share price is enduring extreme volatility and travel restrictions are not helping. Does this FTSE 250 stock make a sensible investment?

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Airline operator and FTSE 250 travel group TUI (LSE:TUI) has seen its fortunes pivot in the past three months. After being hammered by the pandemic, news of the vaccine rollout prompted a rush to buy shares and the TUI share price has recovered 42% since mid-November.

TUI’s share price endures extreme volatility

Operating in the hospitality, restaurant and leisure sector has not been much fun since the pandemic hit. And volatility across the markets has been rife.

Unfortunately, that 42% jump isn’t as rosy as it sounds. That’s because the TUI share price has actually experienced extreme volatility during this period and shareholders who bought in at the peak on January 21 will be down 16%. The recent drop comes in the wake of further UK travel restrictions.

The UK government is bringing in tougher sanctions on travel arrangements, which doesn’t bode well for TUI. The rules include travellers having to pay to quarantine in government-designated hotels (usually around London). This news is likely to discourage people from flying abroad anytime soon. Thus, adding further risk to investing in travel stocks.

Other TUI news

This week TUI announced it’s continuing its cancellation of Marella Cruises at least until April 30. It’s also cutting up to 180 jobs in Spain.

In slightly better news, TUI has become the first European airline to resume Boeing 737 MAX flights. These airliners were grounded globally after two fatal crashes. But after the US lifted its ban, the European authorities recently followed.

It’s worth remembering that TUI wasn’t in great shape even before the pandemic hit. It did briefly benefit from Thomas Cook’s demise, but prior to that was suffering from the 737 MAX grounding.

FTSE 250 stock’s financial outlook

The job cuts and streamlining that Covid-19 enforced mean it could be in better shape going forward. However, its debt levels have increased exponentially this year. And last year the company reported a £2.8bn pre-tax loss to September 30. Then, in its most recent trading update for Q1, it posted revenues of £410m, which was down over 87% year-on-year. At the end of 2019, TUI’s market cap was £5.4bn, but today it’s fallen to around £2bn.

Going on the basis that 2.8m customers had already booked its holidays, the company said it expects to be running at 80% of its normal capacity for this summer. However, many pundits think that’s wishful thinking and Grant Shapps, UK Secretary of State for Transport, agrees. He said: “People shouldn’t be booking holidays right now – not domestically or internationally.”

TUI shares are cheap, but that doesn’t mean they’re a bargain. For investors with a tolerance for risk, TUI may prove a lucrative recovery play. Personally, I’m not ready to dip my toe in the travel sector and I don’t think TUI is among the best shares to buy now. Therefore, I won’t be investing in this FTSE 250 stock.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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