TUI AG's (ETR:TUI1) Shares Bounce 26% But Its Business Still Trails The Market

TUI AG (ETR:TUI1) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Unfortunately, despite the strong performance over the last month, the full year gain of 8.7% isn't as attractive.

Although its price has surged higher, TUI's price-to-earnings (or "P/E") ratio of 7.1x might still make it look like a strong buy right now compared to the market in Germany, where around half of the companies have P/E ratios above 20x and even P/E's above 37x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

We've discovered 1 warning sign about TUI. View them for free.

TUI certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for TUI

Want the full picture on analyst estimates for the company? Then our free report on TUI will help you uncover what's on the horizon.

How Is TUI's Growth Trending?

In order to justify its P/E ratio, TUI would need to produce anemic growth that's substantially trailing the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 14% last year. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 11% per annum during the coming three years according to the analysts following the company. With the market predicted to deliver 17% growth per year, the company is positioned for a weaker earnings result.

With this information, we can see why TUI is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From TUI's P/E?

Shares in TUI are going to need a lot more upward momentum to get the company's P/E out of its slump. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of TUI's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware TUI is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of TUI's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.