Is Tourism Holdings (NZSE:THL) a Contrarian Buy Amid Prolonged Weakness?

In the realm of value investing, market dislocation often creates asymmetric opportunities-where the market's pessimism undervalues fundamentally sound businesses. Tourism Holdings Limited (NZSE:THL), a New Zealand-based conglomerate with significant exposure to the global tourism and recreational vehicle (RV) sectors, appears to be navigating such a scenario. Despite a 30% compound annual revenue growth rate over the past three years and a recent twelve-month revenue of NZ$937.2 million, the stock trades at a stark discount to its intrinsic value estimates. This article examines whether THL's prolonged weakness presents a contrarian opportunity for patient investors.

Financial Metrics: Growth Amid Leverage

Tourism Holdings' financials reveal a paradox: robust top-line growth coexisting with structural leverage. The company's debt-to-equity ratio stands at 93.7% or 1.32, reflecting a highly leveraged balance sheet. This is compounded by a net loss of NZ$23.88 million in the last twelve months, driven by declining margins in its manufacturing divisions and a slowdown in global RV sales. However, the revenue trajectory is compelling. Post-pandemic recovery has propelled THL's revenue to NZ$937.2 million, a 45% increase from its 2021–2025 average of NZ$645.5 million.

The company's Return on Capital Employed (ROCE) of 6.0% lags behind the Transportation industry average of 7.9%, signaling operational inefficiencies. Yet, analysts project a 43% annualized earnings per share growth over the next three years, far outpacing the market's 17% forecast. This disconnect between current performance and future expectations hints at a market discounting optimism due to near-term risks.

Industry Challenges: A Sector in Transition

The RV and tourism sectors are grappling with structural headwinds. Global RV sales declined by 4.67% year-over-year in 2025, with motorized units down 10.5%. While towable RVs have fared better, inventory gluts and price pressures persist. For Tourism Holdings, which derives significant revenue from RV manufacturing, this slowdown has directly impacted profitability.

Broader macroeconomic factors exacerbate the challenge. Rising interest rates have dampened demand for high-ticket motorized RVs, while the company's US operations face potential goodwill impairment of NZ$36 million. Yet, the sector is not without hope. The global RV market is projected to grow at a 6.5% CAGR through 2033, driven by trends like off-grid living and electrification. Tourism Holdings' rental business, heavily tied to international travel, could benefit from a rebound in tourism demand, though this remains uncertain.

Valuation: A Discounted Intrinsic Value

The most compelling case for a contrarian buy lies in THL's valuation metrics. As of December 2025, the stock trades at a Price-to-Book (P/B) ratio of 0.97 significantly below its historical median of 1.41. This suggests the market values the company at roughly its net asset value. However, intrinsic value estimates tell a different story. Analysts calculate a base-case intrinsic value of NZ$6.82, implying a 63% undervaluation relative to the current price of NZ$2.54.

The Price-to-Sales (P/S) ratio of 0.6x further underscores the discount, as it lags behind both peer averages (2.6x) and the global Transportation industry average (0.9x). This divergence may reflect the market's skepticism about THL's ability to convert revenue into profits, but it also creates a margin of safety for investors who believe in the company's long-term resilience.

Risks and Rewards

Investing in Tourism Holdings is not without risk. The high debt load and potential asset impairments could erode equity value if earnings recovery falters. Additionally, the company's exposure to cyclical sectors like tourism and RVs makes it vulnerable to macroeconomic shifts. However, for value investors, these risks are balanced by the potential rewards. The projected 43% EPS growth and undervalued balance sheet suggest that the market is pricing in a worst-case scenario, while the business's underlying strengths-such as its diversified asset base and exposure to growing RV trends-could drive a re-rating.

Conclusion: A Contrarian Case

Tourism Holdings embodies the classic value investing dilemma: a business with strong fundamentals and growth potential, yet persistently undervalued due to sector-specific and macroeconomic headwinds. While the risks of leverage and earnings volatility are real, the current valuation offers a compelling entry point for investors with a long-term horizon. In a market dislocated by short-term pessimism, THL's discounted intrinsic value and projected earnings growth make it a candidate for a contrarian buy-provided investors are prepared to weather near-term volatility.