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Tempted by the Saga share price? Here’s what you need to know

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The Saga (LSE: SAGA) share price has faced significant selling pressure this year. Investors have taken flight following the company’s suspension of its new cruise line in the coronavirus pandemic. 

The group’s outlook is now far more uncertain than it was at the beginning of the year.

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Indeed, Saga entered 2020 on a high. The issues at the group’s insurance business, which management had been working on for more than a year, were finally starting to clear.

The company’s new cruise business was also on track to set sail in 2020. This would have provided a new income stream and diversification for the firm. 

Saga share price setback 

Unfortunately for owners of Saga shares, the coronavirus pandemic scuppered the company’s aims for 2020. The crisis has pushed back the group’s recovery and forced management to take drastic action. 

Luckily, customers seem willing to support the business through these tough times. Earlier in the year, management announced that many customers who had booked to travel on the group’s cancelled cruises this year were re-booking for 2021. This seems to suggest that there remains a healthy demand for the organisation’s services. That’s a positive for the Saga share price’s long-term outlook. 

Still, the company is clearly going to face future uncertainty in the near term. A second coronavirus wave could set back Saga’s recovery plans. A recession may also lead to reduced consumer spending, which would impact growth at all of the business’s divisions. 

Nevertheless, over the long term, Saga’s brand and devoted customer base may help the group. The fact that cruise customers are willing to re-book for next year suggests that demand remains high.

Across the rest of the business, there’s also strong demand for the firm’s specialist insurance and savings products, as well as other travel offerings. 

Recovery position 

As such, as long as the company can survive the current crisis, the Saga share price may be able to stage a healthy recovery in the years ahead. It seems as if the business does have the financial flexibility required to weather the storm.

Management believes the balance sheet is robust, and the group is trying to offload its luxury travel business to raise extra cash. In the meantime, the firm has cut its dividend and is trying to reduce costs. These efforts should help the enterprise pull through these uncertain times. 

And if the Saga share price does make a recovery, shareholders could see a substantial return on their investment from current levels. If the stock returns to the level at which it began the year, it could return nearly 250%. This potential suggests the stock offers a wide margin of safety.

Therefore, it may be worth adding Saga shares to a diversified portfolio of bargain stocks today, before the recovery begins. Doing so could yield high total returns over the long term based on its current valuation. 

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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK 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.

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