Shares in Thomas Cook (LSE: TCG) are up by 2% today after the travel operator announced that trading is in line with management expectations. In fact, Thomas Cook has sold nearly all of the winter season holidays it offers, as well as over half of summer season capacity. A major reason for this is strength in its UK operations, with demand from the UK being aided considerably by a fast-growing economy that is giving consumers the confidence to book holidays. This compares markedly to the situation in Europe, where Thomas Cook is finding trading conditions to be tough.
Growth Potential
Despite a challenging situation in Europe, Thomas Cook is forecast to increase its bottom line by an impressive 7% in the current year, followed by further growth of 27% next year. This shows that, while its future is largely dependent on the macroeconomic outlook, it continues to offer strong growth prospects on which it is clearly delivering. Furthermore, with shares in Thomas Cook trading on a price to earnings (P/E) ratio of just 12.2, it equates to a price to earnings growth (PEG) ratio of just 0.4. This indicates that growth is on offer at a very reasonable price, and that Thomas Cook could be due for a significant price rise over the medium term.
Sector Peers
Of course, Thomas Cook isn’t the only appealing travel stock in the FTSE 350. In fact, the likes of easyJet (LSE: EZJ), IAG (LSE: IAG) and TUI (LSE: TT) all have considerable potential. For example, easyJet is expected to increase its bottom line by 17% in the current year, and by a further 13% next year as it continues to benefit from an upsurge in demand from business passengers, as well as improving efficiencies. And, with a PEG ratio of 0.8, it offers growth at a reasonable price as well as greater stability in its earnings profile than Thomas Cook.
Meanwhile, IAG and TUI also offer the prospect of significant capital gains over the medium term. They trade on PEG ratios of just 0.3 and 0.6 respectively, which are hugely appealing and show that there is considerable potential within the travel sector. However, in both cases they offer less stability in earnings than easyJet, which means that even though they trade on more attractive valuations, easyJet still seems to be the pick of the sector, with it having increased net profit in each of the last five years. So, if you can only choose to buy one, then easyJet looks to be the most appealing buy of the four stocks.
