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Thomas Cook shares? I’d rather buy this FTSE 250 dividend growth stock

The Thomas Cook share price keeps falling. In the last month alone, shares in the troubled travel group have dropped about 27%. Over the last year, the fall is close to 90%.

I believe Thomas Cook shares are likely to end up at zero, as I explained in a recent in-depth article here at the Motley Fool. For this reason, I won’t be going anywhere near TCG stock.

The good news is that for investors with an interest in this sector, I think there are some better opportunities elsewhere.

A winning choice?

One of the most successful stock market flotations of recent years has been budget airline Wizz Air Holdings (LSE: WIZZ). Shares in this flyer, which focuses on central and Eastern Europe, have risen by about 170% since the WIZZ IPO in March 2015.

However, recent comments from Western European budget airlines such as Ryanair and easyJet suggest short-haul operators may be starting to suffer from over-capacity on popular routes. This appears to be pushing down ticket prices and putting pressure on profits.

So far, there seems to be less evidence of this in eastern and central Europe, at least not at Wizz. The airline’s latest results showed a 2.3% increase in average revenue per seat, which helped to offset higher fuel costs. By contrast, easyJet reported a 6.3% fall in revenue per seat in its recent half-year results, despite rising costs.

My view: Wizz Air expects earnings per share to rise by about 15% this year. The airline’s load factor — the percentage of seats sold on each flight — is also improving. This key figure has risen by 1.6% to 93.2% over the last year, which I see as an encouraging performance.  I’m not sure that Wizz Air is a bargain at current levels. But I expect this firm to remain successful and believe it could be a good long-term hold.

A better choice?

One company I rate very highly in the leisure travel sector is AIM-listed Dart Group (LSE: DTG). This £1.25bn firm operates the Jet2 holiday business and airline. It’s also the owner of the Fowler Welch logistics business.

Figures released today show the company generated earnings of 98p per share for the year ended 31 March 2019, beating market forecasts for 95.1p per share.

These figures reflect a bumper year for the group. Pre-tax profit rose by 36% to £177.5m, while sales were 32% higher at £3,143.1m. Strong demand for Jet2 package holidays helped to support a good performance from the airline business.

What I’d do now

Given the cautious outlook reported by other airlines, Dart’s views on the year ahead are arguably more important than Thursday’s results.

The company says sales are still strong, but bookings are being made later than last year. This means pricing has to be “continually enticing.”

The company says it’s “optimistic” forecasts for the 2019/20 year will be met. This sounds hopeful to me, rather than confident, especially as analysts are already forecasting a 15% fall in earnings for the current year.

Despite this, I think DTG shares could turn out to be reasonably priced at current levels. Trading on 10 times 2019/20 forecast earnings, they don’t seem overly expensive to me. I might consider opening a starter position in Dart at current levels, with a view to buying more shares at a lower price when the opportunity presents.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Wizz Air Holdings. 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.