The TUI (LSE: TUI) share price has significantly underperformed the market over the past year.
Since the beginning of December 2020, the stock has returned just 11%. In comparison, the FTSE All-Share index has returned around 17% over the same time frame, including dividends.
It is clear why the company has been struggling. The coronavirus pandemic has gutted the global travel industry, and it does not look as if this disruption will come to an end anytime soon.
TUI has been bailed out three times already by the German government. Unfortunately, it was already facing significant challenges in the run-up to the pandemic. It had a large amount of debt and relatively weak profit margins.
What’s more, the travel industry tends to be unpredictable in nature, so TUI had always struggled to report consistent earnings.
However, some analysts and investors have highlighted the stock as an excellent investment to own to play the global economic recovery, despite the company’s troubles.
TUI share price risks
I am not so sure. As I noted above, the company was already in a difficult position before the pandemic. It is now in an even worse situation.
Even though it has been bailed out multiple times, its balance sheet is relatively weak. Moreover, each bailout came with a new set of restrictions such as limitations on dividend payments and management bonuses.
Nevertheless, I do think it is likely that the group will see an increase in revenues over the next 12 months if the world continues to open up. In the most optimistic scenario, sales will rebound to 2019 levels. This would allow the corporation to reduce debt and move on from the pandemic.
I think it is unlikely this scenario will play out. Travel restrictions continue to play a critical role in controlling the spread of the virus worldwide. Until the pandemic is truly under control, it seems likely some form of travel restrictions will remain in place.
This suggests bookings at TUI and other travel operators will remain depressed. As such, it seems likely that the stock will continue to trade water in 2022.
Without a significant catalyst to push the shares higher, such as a substantial recovery in revenues and holiday bookings, I think the market will continue to wait for positive news.
If there is one thing the market hates more than anything else, it is uncertainty. And right now, there is a lot of uncertainty surrounding the TUI share price. No one can be sure what is just around the corner for the company.
Therefore, I will not be buying the stock for my portfolio anytime soon. Until the group reports a material improvement in trading, I think it will remain a risky investment. I believe there are plenty of other companies on the market that offer better prospects considering the outlook for the travel industry and economy in general.
Rupert Hargreaves 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.