(Bloomberg) — If these are the roaring Twenties, they’re starting at no more than a whisper at Europe’s vacation hotspots this summer. Investors, by contrast, are wildly optimistic, judging by the surge in travel stocks.A third of all hotels may not even open this summer in Portugal, while Croatia expects this year’s overnight stays at just 60% of the record set in 2019. “2021 seems to be worse than last year; there are no pre-bookings,” said Lysandros Tsilidis, president of Greece’s Association of Tourist and Travel Agencies.Meanwhile, a gauge of European leisure and travel shares has not only recouped all of its pandemic losses, but hit a record high this week amid jumps for companies like tour operator TUI AG, cruise ship group Carnival Plc and hotelier Accor SA, along with several airlines. Budget carriers Ryanair Holdings Plc and EasyJet Plc have both almost doubled in the past year.The glaring disconnect between those two outlooks can be explained by timing, said Grace Peters, head of investment strategy for Europe, the Middle East and Africa at JPMorgan Private Bank. While the stocks look expensive compared to this year’s estimated earnings, which will be depressed or non-existent for many companies, they’re much more reasonably priced looking further out, she said.“What might now look like an expensive valuation, as those earnings come through, the stocks will grow into the multiple,” she said in an interview. Some travel stocks are selling at around 10 times estimated 2023 profit, “which feels too cheap when you start to think about normalized earnings.”One thing is clear: Once people are allowed to leave their houses again, they’ve got plenty of money set aside if they want to get on the first plane to somewhere nice. Bloomberg Economics estimated this month that households in the U.S., China, U.K., Japan and the biggest euro-area nations socked $2.9 trillion away when forced by the coronavirus to stay home and out of the shops. And $410 billion from the latest round of stimulus is landing in Americans’ bank accounts.The European Union’s executive arm is working to reduce the obstacles for sun-seekers: It unveiled a plan this week for the introduction of a digital pass that will ease travel for those vaccinated, recovered from the virus, or who can prove a recent negative test, though some travel executives are skeptical it can be introduced in time for the summer. The European Commission also proposed a roadmap for the gradual easing of restrictions, which is due to be endorsed Thursday by EU leaders.Flight booking site skyscanner.com said there was a surge in searches right after the German government lifted restrictions for Mallorca.What should trouble investors, according to some analysts, is that the timeframe for this return to a semblance of normalcy is uncertain. The EU’s vaccination rollout lags behind the U.S. and the U.K., according to Bloomberg’s tracker, and countries across the bloc saw new flare ups in infections this week, with Greece hitting a pandemic record and seeing its intensive care units overflowing with patients.Deutsche Bank AG advised clients looking at hotel stocks to “remain selective and to avoid rushing in at any price to gain exposure to the recovery.”“The reality is that almost all countries still have a total lack of visibility on the evolution of the Covid virus and its variants,” analyst Andre Juillard wrote in a note this month, highlighting that Accor and rival InterContinental Hotels Group Plc trade at more than 20 times earnings.Europe’s slow vaccine progress and concern over the safety of the AstraZeneca Plc shot risks pushing the airline sector’s recovery back to next year, potentially leaving some firms needing to raise fresh funds, said Bloomberg Intelligence’s Rob Barnett.“The recent rerating of the airlines and airports implies many are priced for a recovery in time for peak summer,” James Goodall, an analyst at Redburn, wrote in a report Friday in which he cut his ratings on Ryanair, budget carrier Wizz Air Holdings Plc and airport operator Fraport AG. “A recovery by summer is not locked in.”Equally uncertain is the outlook for the hospitality industry.Take small-cap Hostelworld Group Plc, the Dublin-based accommodation booking platform that taps into demand from young people traveling on a shoestring. The company has “no meaningful forward bookings,” Peel Hunt’s Ivor Jones and Douglas Jack wrote in a report this month. The share price — which is up about 128% since last year’s low — “implies an unlikely, rapid recovery,” the analysts wrote as they reiterated a reduce rating.Then there’s SSP Group Plc, the travel catering concessions group that announced a 475 million-pound ($658 million) rights issue on March 17 as it warned the pace of the rebound this year has been “delayed relative to the group’s expectations.” Credit Suisse analyst Leo Carrington said in a note before the fundraising update that the firm’s valuation didn’t reflect “warranted concerns” around the recovery in U.K. rail and international air travel, as he maintained an underperform rating.Prudence AppealsAppeals for prudence may fall on deaf ears, amid a broad market rally that has seen money being poured in to everything from meme stocks to elaborate GIFs of a cat with a rainbow trail.Amid warnings that air traffic may not return to its pre-crisis levels until 2023 or later, and expectations that our compulsory induction to teleworking may leave permanent scars on business travel — the most lucrative segment for carriers — the reckoning for bullish investors may come from debt markets.Travel and leisure companies in search of cash have benefited from rock-bottom interest rates, ample liquidity and investors’ desperate hunt for yield. Bonds from the industry were among the most battered corporate securities last year, and yet some issuers managed to raise new debt even as their revenue was severely hit.German airline Deutsche Lufthansa AG has sold sub-investment grade notes twice since November, partly to repay the government bailout, and in both cases the offering received very strong investor demand. And cruise operator Carnival has sold bonds five times since the pandemic started.“The key thing is, if you believe the cruise industry is still going to exist in the post-Covid world, then Carnival as the number one is well positioned to survive,” said Chris Sawyer, a high-yield bond investor at Barings.Taxpayer-funded bailouts have helped cement the impression that governments won’t let troubled companies sink, especially national champions such as flag carriers. EU nations have pledged more than 3 trillion euros ($3.6 trillion) in state aid so far, of which some 23.5 billion euros was channeled into airlines in the form of loans, guarantees, capital injections and grants.But with the rebound upon which investors have placed their bets for the industry’s recovery, the justification for continuing cash injections will weaken, leaving companies with fewer options to deal with their debt overhang. Governments will face increasing pressure to put their finances in order, and central banks may be forced to raise rates.Peters at JPMorgan Private Bank says that what matters is that people will travel sooner or later, and we should see today’s valuations in light of the projected earnings of these companies in 2023. Investors should look for stocks that are still below their peaks of February 2020, just before the pandemic hit, she says.“Because any setback would likely be a setback for a number of weeks rather than quarters,” Peters said. “We’re on a journey towards normalization that should be reached at some point in the second half of the year.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.