Could this penny stock benefit from the looming travel boom?

Jabran Khan believes this penny stock could be well placed to benefit from the travel boom occurring after the past few years of pandemic woes.

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One penny stock that could benefit from the recent travel boom is Hostelworld (LSE:HSW). Should I add the shares to my holdings?

Travel bouncing back

When the pandemic struck and restrictions came into force, the travel industry as a whole came to a grinding halt. In recent months, travel bookings and the industry seems to be on the rebound. With summer just around the corner, many businesses could be set to benefit.

Hostelworld is an online portal offering property management and distribution services. Holiday-goers can book a hostel in over 180 countries using the online platform.

A penny stock is one trading for less than £1 and Hostelworld shares are trading for 84p, as I write. At this time last year, the shares were trading for 98p, which is a 14% drop over a 12-month period. More importantly, the shares have rallied nearly 40% from 61p in March due to the stock market correction, up to current levels.

A penny stock with risks

Hostelworld has a chequered past when it comes to performance history. I do understand that past performance is not a guarantee of the future, however. A lack of consistent performance and sustained losses in the past is off-putting when compiling my investment case.

Next, the landscape of travel looks uncertain due to ongoing fears of the impact of the pandemic, which has not disappeared. New variants could hinder the industry and Hostelworld’s performance once more.

Finally, I must note that macroeconomic headwinds such as soaring inflation and rising costs could have a real impact on consumers’ abilities to book holidays. This would impact Hostelworld negatively.

The positives and my verdict

I do believe Hostelworld could benefit from pent up demand and a new appreciation for holidays caused by the pandemic. Recent news of bookings surging and airports struggling with passenger levels (partly due to staffing issues, it must be noted) is encouraging for a penny stock like Hostelworld which should see booking levels and performance increase.

What about Hostelworld’s performance recently? Well, it released a preliminary report for the year ending 31 December 2021 at the end of March. It said revenue increased by 10% compared to 2020 levels. Next, average booking value increased by 30% and cancellations decreased by 43%. Hostelworld also managed to remove €7m of operating costs. A full annual report is due to be released next week.

Despite difficulties in the past two years, 2021 results tell me that Hostelworld’s fortunes could be about to turn around, as well as those of the travel industry as a whole. Yes, there are credible risks and headwinds that could derail progress, performance, and growth ahead.

Would I add Hostelworld shares to my portfolio currently? The short answer is no. I do like the direction of the business and recent results are encouraging. I have made my decision based on a lack of consistent performance history as well as general issues facing the travel industry and continued pandemic fears. There are better penny stock options out there for my holdings.

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.

Jabran Khan 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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