Little Turbulence From Thomas Cook Group plc… But Is easyJet plc A Better Portfolio Passenger?


It’s been a hugely disappointing year for investors in Thomas Cook (LSE: TCG), with shares in the airline and travel company falling by 27% since the turn of the year. This doesn’t compare favourably with the FTSE 100, which is up 0.5% over the same time period. However, sector peer, easyJet (LSE: EZJ), has also had a tough time of it in 2014, with shares in the budget airline being down 13% year-to-date. So, looking ahead, which one could prove to be the better performer: Thomas Cook or easyJet?

Upbeat Update

Today’s pre-results update from Thomas Cook is upbeat and shows that the company is making encouraging progress with its cost-out and profit-improvement programme. Indeed, all divisions of the company are set to report an improved fourth quarter and the full-year is set to be materially better than last year.

The one blot on the company’s copy book, though, is performance in its German division. Margins have declined as a result of weaker demand and excess market capacity, with the company stating that the effects of sanctions on Russia could be at least partly to blame. Despite this, the company is looking forward to continued bottom-line improvement across the business in future.

Growth Potential

Indeed, Thomas Cook has strong growth potential. Its full-year results for the year to September 2014 are set to show a dramatic turnaround, with the company set to return to profitability after three years of losses. Moreover, Thomas Cook is expected to follow this up with bottom line growth of 56% next year, as its cost-cutting programme continues to aid margins.

Of course, Thomas Cook isn’t the only airline/travel company with strong growth potential. Sector peer, easyJet, is also all set to post impressive growth numbers moving forward. For instance, the budget airline is due to increase earnings per share (EPS) by 12% in the current year and by a further 11% next year. Although lower than Thomas Cook’s growth forecast, easyJet has a track record of strong profitability and is, therefore, perhaps the more reliable of the two when it comes to earnings growth.

Looking Ahead

Despite their attractive growth potential, neither Thomas Cook nor easyJet trades on a high valuation. For example, Thomas Cook has a price to earnings (P/E) ratio of just 12.2, while easyJet’s is even lower at 11.8.

Furthermore, when the two companies’ growth prospects are taken into account, their investment potential really starts to make sense. That’s because Thomas Cook has a price to earnings growth (PEG) ratio of just 0.2, while easyJet’s is also attractive at 0.9. This shows that both companies offer growth at a very reasonable price and have the potential to deliver highly impressive returns to investors in future.

As for which one of the two is the better buy, Thomas Cook may prove to be more volatile due to its chequered recent history, while easyJet offers relatively more stability. For this reason, the latter seems to be the more prudent buy, although Thomas Cook also has a very bright investment future, too.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.