Charts analysts John Burford considers whether a major re-rating is around the corner for this holiday share.
Along with other tour and hotel operators, TUI (LSE:TUI) has been severely impacted by the pandemic lockdowns and extreme travel restrictions over the past 18 months. This German company boasted pre-pandemic turnover in 2018 financial year at 19 billion euros. Last year, company turnover was reported at a paltry 8 billion euros with a loss of 3 billion euros.
With that kind of performance, it is little wonder the shares have collapsed from their 2018 high at £18 to the recent £2 low. Ouch!
This summer, it appeared the worst of the effects of the restrictions were about over and with the vaccination roll-outs in full swing, holiday bookings could regain previous high levels and the shares rallied.
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But in recent days, Covid cases in Europe have been climbing and there are worries that vaccination rates are lagging. Bullish travel sentiment has made a turn lower. And the winter low season is upon us. So, is this a good time to consider buying holiday shares?
Not on that picture, but have the shares fully discounted a worst possible scenario? Will next season also be a flop? If so, many travel companies will almost certainly go bust – an outcome unthinkable in the minds of governments who will be desperate to avoid mass layoffs. They will surely pull out all the stops to get vaccinated travellers on board.
In recent days, the shares have continued their decline, but do I see a buy low, sell high set-up here?
Past performance is not a guide to future performance
The slide off the 2018 high is spectacular and has the look of a large three down to the £2 region. But that price is precisely where the shares stood in March last year at the lows of the Corona Crash! That sets up the possibility we have a famous chart pattern: the Double Bottom.
Incidentally, this chart pattern of a 'real economy' company is in stark contrast to those of the tech giants that have done so well out of the pandemic and have lead the indexes into new highs. For instance, since 2018 Facebook (NASDAQ:FB) shares have more than doubled, while Tui shares have lost 88%. Is it possible perhaps a major re-rating is around the corner?
If so, then selling Facebook and buying Tui might pan out very well in the weeks ahead.
If we do have a Double Bottom here, then the huge momentum divergence would herald a major rally phase ahead – an exciting prospect as the many shorts would then be forced to cover (buy back) in the face of reduced earnings (and greater operating losses) in the coming winter season. A contrary result, indeed.
With a reversal, my first major target is the £5 area and then on to £6 with higher potential.
John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.
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