TUI (LSE: TUI) shares fell again last week. They’re now at a five-year low.
The German travel firm is down 88% from before the pandemic. It’s down 63% this year and 21% in only the last month. Over five years, it’s the second-worst-performing stock on the FTSE 250. That’s a rough few years.
Why are the shares dropping?
Good news might be on the way. Covid is out the picture, and other travel-related stocks like easyJet and IAG are already climbing back up. We could be at a turning point for TUI shares.
To explain why, the first question we need to look at here is: why are the shares still falling?
Well, it’s not because TUI is a bad business. Before the pandemic, it was one of the world’s leading travel companies. It had a market value over £10bn and the shares traded as high as £118. That’s quite a drop to the current price below £5 (actually it’s £4.79).
Why investors are put off
The firm didn’t stick to airlines, hotels or cruises, it did the whole lot. This was part of its appeal for investors, but it also meant Covid was a huge problem.
TUI built up tonnes of debt after 2020. That’s not a shock though. Lots of companies did that to keep the lights on. It was the firm’s response that caused the problems.
It handled this with a series of rights issues. This helped manage the debt, sure, but it took plenty of value from shareholders. The latest was for £1.6bn earlier this year. That’s a big sum compared to the firm’s £2.4bn market cap.
If investors are put off, I’m not surprised. After all, the firm still owes billions. Who’s to say another dilution won’t come along?
The good news
Those airlines, easyJet and IAG, didn’t do this. They didn’t look towards shareholders to pay off their debts. They expected that the future profits would do it. And as far as TUI is concerned, the forecast profits are a glimmer of hope here.
So here’s the good news. Q4 earnings are forecast to be £1.1bn. That’s up from £33m for Q3. That’s a huge bump. It could be the turning point.
Am I buying?
With earnings that high, debt and financing could be quickly handled. A share price less than £5 could look very cheap considering the forecasts expect a lot of profit compared to TUI’s market value.
Is that enough for me to buy in? Well, it’s a speculative buy. I’d be investing in a company with a track record of diluting shareholders. Not my cup of tea, if I’m honest.
On the other hand, TUI could meet expectations and be swimming in cash. It might be the catalyst for the stock to surge higher. I’ll add it to my watchlist.
