Thomas Cook share price crashes 20%, but could it be time to load up?
The Thomas Cook(LSE: TCG) share price slumped by over 20% on Monday after the company released a disappointing update. Investor sentiment has deteriorated following a tough period for the business, with its future appearing to be relatively uncertain.
While more volatility could be ahead in the near term, in the long run the business may offer turnaround potential. However, it’s not the only FTSE 350 stock which could now offer excellent value for money after a share price fall.
Another company which has recorded disappointing share price performance of late is house-builder Barratt Developments(LSE: BDEV). The company’s valuation has fallen by around 15% since the start of the year, with investors becoming increasingly unsure about the prospects for the house-building industry. Brexit is contributing to weak economic growth in the UK, and it is feared that this may cause a decline in housing market activity over the coming months.
Barratt, though, seems to have sound long-term recovery potential. The housing market in the UK continues to be plagued by a lack of supply. Even if government policy meant that house-building increased over the coming years, the imbalance between demand and supply is such that it could take a significant amount of time for it to move into equilibrium. And with Barratt having a large land bank, it seems to be in a strong position to capitalise on continued high demand over the next few years.
The stock now has a price-to-earnings (P/E) ratio of around 9 following its share price fall. With supportive government policy such as Help to Buy, its financial prospects remain sound. This could eventually translate into a share price recovery.
As mentioned, Thomas Cook has experienced a difficult number of months. Warmer than expected weather has meant that many customers have put off booking their holidays abroad. This has led to tough competition and higher than usual levels of discounting in the ‘lates’ market of August and September. This has contributed to a fall in average selling prices across the company of 5%, with 90% of Summer 2018 holidays sold.
Looking ahead, Thomas Cook continues to feel the impact of a hot summer on its winter bookings. It now expects full-year underlying operating profit to be around £280m. Further downgrades to the company’s profit outlook cannot be ruled out, and this could mean that volatility in its stock price continues.
The strategic progress being made by Thomas Cook, though, remains impressive. The launch of its Expedia alliance in the UK and Scandinavia and the signing of its first own-brand hotel in China could lead to improving financial performance in the long run. As such, and with the company’s shares now offering a wider margin of safety than they have done previously, now could be the right time to buy the stock. Although its near-term future may be uncertain, its long-term growth potential remains high.
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Peter Stephens owns shares of Barratt Developments. The Motley Fool UK has no position in any of the shares mentioned. 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.