Are National Express shares one of the best travel stocks to buy?

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I am looking to diversify my portfolio and have been reviewing travel stocks recently. One stock I am currently interested in is National Express (LSE:NEX). Could the shares be a shrewd addition to my holdings? Let’s take a closer look.

Helping people travel

As a quick reminder, National Express is a bus, train, light rail, express coach, and airport services travel provider based in the UK. It also has international operations in the US and Australia.

So what’s happening with National Express shares currently? Well, as I write, they’re trading for 186p. At this time last year, the stock was trading for 270p, which is a 31% decline over a 12-month period. It is worth noting that many travel stocks have seen their share prices struggle since the pandemic.

The bull and bear case

Firstly, I believe that National Express has a distinct advantage over many of its competitors in the travel sector. Its large size, coupled with its geographical footprint, is advantageous. Next, due to its profile and presence, it often wins lucrative contracts, which is positive for me as a potential investor. Contractual agreements usually offer stable revenue streams.

When the pandemic struck, National Express shares suffered badly. Demand for public transport dwindled and 2020 performance was reflected in this too. Revenue and profit levels dropped in 2020, after previous years of growth. The good news is that 2021 performance surpassed 2020, which means the business is on the right track once more. I am keen to see 2022 performance but in terms of looking back, I do understand past performance is not a guarantee of the future.

Next, at current levels, National Express shares look good value for money on a price-to-earnings ratio of just six. This tells me they could be excellent value to buy now and hold on to for the long term for growth and eventual returns.

National Express must navigate some serious headwinds currently, however. Soaring inflation, coupled with rising costs have placed real pressure on operations, performance, and returns. Profit margins are being squeezed by rising costs such as for fuel.

Finally, there have been talks of strikes across the travel sector in recent months, especially here in the UK where some have taken place. This could affect performance and returns, as well as investor sentiment for National Express.

My verdict

Overall, I would buy National Express shares for my holdings. I am buoyed by its profile, presence, and its past track record. The shares also look too good to miss on current levels.

I am not concerned by the current headwinds, and don’t foresee these as longer-term issues. In fact, the current cost-of-living crisis could be beneficial for National Express shares. This is because cheaper, low-cost travel options will increase in demand for consumers. This could boost performance and returns upwards.

The post Are National Express shares one of the best travel stocks to buy? appeared first on The Motley Fool UK.

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Jabran Khan 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.