The Saga (LSE: SAGA) share price has been on a wild ride this year. Shares in the British insurance, travel, and financial services firm started the year at around 800p (after adjusting for the recent share consolidation), and have since plunged to just over 125p.
Following this decline, investors might be wondering if the stock could ever recover to previous highs. That’s something I’m going to look at today.
Saga share price recovery
Investor sentiment towards the business was already weak heading into 2020, and then the coronavirus crisis hit. Saga was betting a lot of money on the success of its cruise business, but unfortunately, this business is beached.
While the company has stated that demand for its sailings due in 2021 has held up well, the longer the crisis goes on, the less likely it is the business will be able to capitalise on this demand.
Indeed, larger cruise companies have already started to cancel sailings for next year. If Saga has to push back these voyages, the company’s recovery will be delayed further still.
Nevertheless, while the group’s cruise business may continue to struggle, the outlook for the rest of the operation seems bright. Saga has a strong reputation among the over-50s, and this reputation should help the company recovery on the other side of the crisis.
What’s more, Saga’s recent restructuring and cash call have significantly strengthened the group’s balance sheet.
All of the above should help the Saga share price recover in the long term.
Unfortunately, at this stage, it is impossible to say when the recovery will finally start to take hold. If the coronavirus crisis continues into 2021, it could be several years before the firm’s sales return to 2019 levels.
But, when the recovery does eventually take hold, figures suggest the shares could rise several times over. Indeed, analysts reckon Saga has the potential to earn 58p per share in 2022. That puts the stock on a forward price-to-earnings (P/E) ratio of 2.4. Still, as noted above, these forecasts are highly dependent on the company being able to restart operations in 2021.
The bottom line
So overall, there is a chance the Saga share price could recover. However, at this point, there’s no guarantee the business will be able to return to growth in 2021/22.
As such, this may be an investment that’s only suitable for the most risk-tolerant long-term investors. If earnings recover in 2022, there’s a chance the shares could double or triple from current levels. The chances of this, however, are not high. I would put them at about 50/50.
If the company can’t return to growth, the stock could languish at current levels or even fall further. That’s why this investment may only be suitable when owned as part of a well-diversified portfolio.
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.