The TUI (LSE: TUI) share price was one of the worst-performing blue-chip investments on the London market last year.
However, that’s changed over the past few months. Since the beginning of 2021, shares in the world’s largest travel company have returned 48%. That’s compared to a return of just 1.4% for the FTSE All-Share Index over the same period.
And its recent market-beating performance means the stock has also outperformed the broader market over the past 12 months. Since the beginning of March 2020, the TUI share price has now outperformed the FTSE All-Share by 19%, excluding dividends. The price is up 21.16% in a year.
In some respects, these figures are entirely misleading. While shares in the travel company have outperformed over the past 12 months, its underlying business is on life support. Revenues have vanished, and the group has been bailed out no less than three times since the beginning of the pandemic.
As such, I think it might be best to look past the recent performance of the TUI share price and focus on the underlying business instead.
Struggling for growth
Investor sentiment towards TUI has improved dramatically over the past few months as the global fight against coronavirus has turned a corner. Tens of millions of people have been vaccinated across the UK, Europe and the US in the past few months. And while the vaccination programme still has some way to go, it is already having an impact on infection and hospitalisation rates.
This is great news for travel and tourism businesses such as TUI. After 12 months of uncertainty, there are green shoots on the horizon.
Estimates vary, but the most optimistic forecasts suggest the travel industry could return to 2019 levels of activity by 2022/23. Unfortunately, recovery is by no means guaranteed. What’s more, even if TUI’s sales return to 2019 levels, the company is not the same business it was two years ago.
The succession of bailouts has left the company heavily indebted to the German government. The bailouts also placed significant restrictions on the business, such as dividend bans, which may hold back investor returns for years.
Then there are the group’s other obligations to consider. Debt has exploded, and it could be years before it can begin to rebuild its balance sheet. The company’s inaction on refunds has also hurt customer sentiment towards the firm.
TUI share price: uncertain outlook
Overall, while its outlook might have improved modestly over the past few months, trying to put a value on the business today is incredibly challenging. Therefore, I would not buy the stock for my portfolio today.
In my opinion, the company faces an uphill struggle to return to 2019 levels of profitability. Even then, it has to rebuild its balance sheet. That’s assuming the pandemic is brought under control this year. If not, TUI could face further pain in the years ahead.
All in all, there’s a vast cloud of uncertainty hanging over the TUI share price right now, and I’m not going to buy the shares while this uncertainty persists.
