The near-term outlook for the Saga (LSE: SAGA) share price remains fraught with danger as the Covid-19 crisis drags on. But the holidays giant has soared in value since the start of 2021 on rising optimism that travel restrictions might be lifted.
The Saga share price is up 130% since the beginning of the year, and up by a similar percentage over the last 12 months. Yet despite these rises, the UK financial share still looks mighty cheap on paper.
City analysts think annual earnings will surge 77% this fiscal year (to January 2022). This leaves Saga trading on a forward price-to-earnings growth (PEG) multiple of 0.2. Remember, any reading below 1 suggests a stock might be undervalued by the market.
Sure, the Saga share price looks cheap. But should I buy it for my Stocks and Shares ISA today?
Why the Saga share price could keep climbing!
Here’s why I think Saga could prove to be a top UK share to buy:
#1: As a long-term investor, there’s something particularly appealing about this UK share… Its focus on providing financial services and holiday packages to the over-50s. This provides exceptional profits opportunities as the British population rapidly ages (government projections show the number of people aged 65-plus will have grown 50% by 2039).
#2: It’s possible the Saga share price could encounter fresh problems if holiday restrictions persist longer than expected. But right now signs are growing that lawmakers are making plans to reopen the tourism industry. Okay, this may be dependent upon so-called vaccine passports for travellers. But the successful vaccine rollout for elderly people means Saga might enjoy a stronger sales recovery than many other UK travel shares if related passports become a requirement.
#3: Saga’s latest trading update this month showed total cruise bookings were up 20% from the same point a year ago. There’s no doubt this reflects strong pent-up demand caused by more than a year of Covid-19 lockdowns. But the fact the cruise holiday segment is the fastest-growing part of the travel industry is probably a significant driver too. KPMG says demand for cruises had risen around 21% in the five years to summer 2020.
Beware of the big debt
There’s clearly a lot to like about this UK share then. But I’m afraid I’m still not tempted in by the cheap Saga share price. Ultimately, I’m concerned that Covid-19 rates on a global scale are shooting higher again. This naturally could have significant ramifications for when Saga’s cruise ships can set sail again. Not to mention how high capacity will be like when passengers are allowed to climb aboard again.
This is particularly worrying considering the colossal amounts of debt Saga has on its books. The company’s net debt grew to an eye-watering £760.2m as of January. The cheap Saga share price is mighty tempting sure. But, for the time being, this UK share is a bit too risky for my liking.
