After a torrid year, investors have been rushing to buy back into the Saga (LSE: SAGA) share price over the past 30 days. This demand has sent the stock price surging. It’s up more than 100% since the beginning of November.
I think this could be just the start of a more significant run higher for the shares as the company’s recovery gets under way.
Saga share price recovery
Over the past few months, I’ve covered this over-50s travel and finance specialist on several occasions. And after the initial shock of the pandemic, as the year progressed, I’ve become steadily more optimistic about the corporation’s potential.
At the beginning of the year, it looked as if the pandemic would undo years of hard work at the business. Saga has spent a significant sum investing in its cruise business, which was supposed to drive earnings growth for the next few years. Unfortunately, the company’s young fleet has been mothballed for the majority of the year.
There’s more to Saga than its cruise business. But the rest of the group has been navigating a series of challenges in recent years. Management had hoped that the cruising division would provide much-needed cash flow to power the regeneration of the rest of the enterprise.
As a result, management has had to get radical. The company has tapped investors for cash to reinforce the balance sheet and changed its management. After these changes, the business looks to me to be in a much stronger position than it was at the beginning of 2020. That’s even after the torrid year the organisation has faced.
On the up
The outlook for the Saga share price has also improved thanks to the improving performance of its other businesses divisions. Indeed, the financial division is finally starting to pull its weight after several years of hard work.
Thanks to this, analysts are optimistic that the business can return to growth next year. City analysts reckon the firm will report earnings per share of 37p for its 2022 financial year. That’s around 60% lower than its last profitable financial year.
But I think this could be too conservative. The economic damage of the pandemic has not been as bad as many analysts were expecting. What’s more, many sectors have recovered much faster than analysts were expecting. This bodes well for the future of the Saga share price, in my view.
With its reinforced balance sheet and new management team, Saga should be able to take advantage of the favourable market backdrop. And if sales and earnings exceed City growth expectations in the next few years, I reckon the stock could jump substantially from current levels.
As such, even after the recent positive performance of the company’s stock price, I continue to believe that the shares are undervalued based on Saga’s medium-term potential.
