Over the past five years, the Saga (LSE: SAGA) share price has experienced a lot of turbulence. The stock hit an all-time low of around 130p in October 2020, and it has since recovered to about 250p.
And I think we have now seen a low for the stock.
As the company pushes ahead with the reopening of its cruise business and capitalises on increasing demand for financial services, I think its earnings will steadily increase over the next couple of years.
Saga share price outlook
A quick glance at City expectations for the company’s growth over the next few years seems to support my conclusion. Analysts believe the corporation will report earnings growth of more than £80m in the 2023 financial year. Analysts also expect the group to report a loss of £16m in 2022 and then a profit of £66m in 2023.
Based on these numbers, the stock is trading at a 2023 price-to-earnings (P/E) multiple of 5.4. That looks cheap compared to the rest of the market, which is dealing at an average P/E multiple of around 14.
These figures imply the stock could be worth three times more than its current value in the best-case scenario. However, these numbers are just estimates at this stage. The outlook for the global economy is incredibly uncertain.
There is no guarantee the company will be able to hit these earnings forecasts. If there are additional pandemic restrictions in the cruise industry over the next couple of months or if there is a significant deterioration in the global financial environment, the organisation may have to reconsider its growth plans. These are some of the most significant risks the enterprise faces today.
Moving forward
But I am confident that this Saga share price has bottomed despite these risks. Over the past two years, the company has significantly improved the state of its balance sheet. It has paid down debt and raised cash to meet upcoming obligations.
At the same time, management has restructured the business to reduce costs and increased the company’s focus on more profitable business lines. These should help the business overcome any near-term challenges, particularly regarding competitive forces in the financial services market.
The business has streamlined and refined its financial offer. These changes are already proving popular with customers.
Put simply, the company is in a much stronger position today than it was two years ago. That is why I believe the Saga share price has bottomed, despite growing risks in the global economy.
As such, I would be happy to buy the stock as an undervalued recovery play for my portfolio over the next few years. As the group pushes forward with its growth ambitions, I think the shares could rise significantly from current levels.
