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What You Were Buying Last Week: Thomas Cook Group plc

One of Warren Buffett’s famous investing sayings is “be fearful when others are greedy and greedy only when others are fearful”. Or, in other words, sell when others are buying and buy when they’re selling.

But we might expect Foolish investors to know that, and looking at what Fools have been buying recently might well provide us with some ideas for good investments.

So, in this series of articles, we’re going to look at what customers of The Motley Fool ShareDealing Service have been buying in the past week or so, and what might have made them decide to do so.

Phenomenal 

Thomas Cook Group (LSE: TCG) has had a phenomenal change of fortunes over the past few years. After losing more than 96% of its value between March 2010 and November 2011, when it dipped below 9p, Thomas Cook’s share price subsequently rocketed more than 2,000% in little over two years, hitting 186p in January of this year.  

Since then it’s fallen back somewhat, but even at today’s 126p, that still makes Thomas Cook a more than 14-bagger for anyone prescient (or just plain lucky) enough to have bought in at its nadir.

The credit for the spectacular turnaround was given largely to Harriet Green, who was brought in as CEO in July 2012, when the company’s share price was still languishing in the mid-teens, and its finances were a shambles.

Despite having no experience in the travel industry — her previous job had been as CEO of electronics supplier Premier Farnell for six years — Ms Green took a firm grip on Thomas Cook’s finances, swiftly reducing costs through extensive job cuts and store closures, and restructuring its capital base to deal with its significant debts.

And it worked. To remarkable effect.

Shock

Just over a year ago, Ms Green said that her performance should be judged after five years.  And as recently as 20 November she told the ‘Inspiring Women’ conference that “You can’t do a transformation on this sort of scale in a year or two years.”.

So, when it was announced last Wednesday (26 November) that Ms Green would be leaving Thomas Cook “with immediate effect” after only two-and-a-half years as CEO, the market was shocked enough to send the company‘s share price plunging. At one point it had plummeted almost 25%, dropping below 105p during trading that day.

The news was made all-the-more shocking because it came on the same day that Thomas Cook reported its full year results, which featured a 44% increase in underlying profit and a 22% decrease in net debt. Add to that the fact that underlying earnings per share were almost 20% ahead of forecasts, at 11.3p, and Ms Green’s sudden and completely unexpected departure seemed all the more puzzling.

But as well as the financial highlights already mentioned, Thomas Cook’s results also said that the company was now facing “tougher trading environment” and that further growth was now expected to be “at a more moderate pace”.  So perhaps Ms Green had done as much as she could — she’d rescued the company from near-oblivion, after all — and it was time for someone with industry experience to take the reins.  

Over-reaction

Step forward Peter Fankhauser, Ms Green’s number two, and the person who had overseen the turnaround in Thomas Cook’s key UK and Continental Europe businesses. Whatever the reason for Ms Green’s departure, the company was at least going to be left with a safe pair of hands on the controls.

A 25% fall in value was certainly dramatic, and it’s likely many people saw it as a fearful over-reaction by the market. Certainly, enough customers of Motley Fool ShareDealing seemd to have thought it worth buying shares in Thomas Cook last week to put the company in the number 3 position in the latest Top Ten Buys list*.

And their decision has been vindicated — so far, at least — with the share price having recovered to now stand at 126.7p. That’s only 8% below its close the evening before  Harriet Green’s departure was announced.

Of course, no matter what anyone else was doing last week, only you can decide if Thomas Cooks is currently a buy.

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Jon Wallis 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.

* based on aggregate data from The Motley Fool ShareDealing Service.