Here’s one that would have over tripled an investment from just a year ago!

Understanding the basics

I’m talking about Saga (LSE:SAGA) which isn’t just another insurer or travel company. It’s built around a very specific niche of affluent customers aged over 50. That demographic tends to have higher disposable income and strong brand loyalty.

The business has three main engines. First is travel, including ocean cruises and packaged holidays. Second is insurance, where Saga increasingly acts as a broker rather than taking underwriting risk. And third, smaller divisions like personal finance and its well-known magazine.

Over the past year, the stock’s up an incredible 266%. This means £2k invested a year ago would now be worth £7,320. That’s an incredible return, vastly outstripping both competitors and the broader FTSE 250 index.

Even so far in 2026, when the market has been under pressure due to the conflict in the Middle East, Saga stock’s up 22%. As a note, the profit is unrealised and would fluctuate daily. It would only be confirmed when the stock was sold, and the proceeds banked in cash.

Reasons for the surge

The main driver of the move has been tangible benefits from the turnaround plan. For example, a return to profit. Back in September, the half-year results showed a flip from a loss of £116.9m to a profit of £3.7m. The full-year results are due out later in April, but the trading update from January reinforced the improved finances after saying full-year profit was set to be ahead of guidance.

Net debt’s also coming in lower, which has acted to reassure investors as it shifts the dynamic from a struggling firm to one that’s on the front foot. In the January trading update it said: “This is supported by the strong trading cash flow and final proceeds from the sale of our Insurance Underwriting business“.

Finally, investors are already buying due to factoring in more outperformance in the future. Momentum’s expected to continue in the Cruise and Holidays businesses. The over-50s demographic is expanding and wealthier than younger cohorts, a trend noted as driving increased travel demand.

Fundamentally, this is a structural growth driver that doesn’t depend on the economic cycle as much as you’d think.

However, one risk is that debt levels are still high. It’s good it’s coming down, but if interest rates increase this year in the UK it could still be problematic for the company with higher debt financing costs.

On balance, I think Saga could continue to outperform and is a stock to consider.

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Number crunching

I’m referring to Saga (LSE:SAGA). The stock is up 42% so far this year. That’s 364% annualised! Of course, I’m not claiming it’ll keep up this crazy pace of growth for the rest of the year. But already, £2k would have grown to £ 2,840 in less than two months. That’s seriously impressive.

Saga sits in the FTSE 250, so it’s not a small, penny stock either. For comparison, the FTSE 250 is up 4.3% this year, highlighting the scale of Saga’s outperformance.

It’s not as if all of Saga’s peers are going the same way. Aviva is a competitor, yet the stock is down almost 9% in 2026.

Company-specific drivers

Last month, the firm provided a trading update that seriously impressed investors. It said profit before tax for the full year is now expected to be above the guidance from the previous half-year report. What has helped is the fact that all divisions are performing well. Travel, insurance, holidays, and other areas are in high demand among consumers.

Looking ahead, it spoke about optimism surrounding recent partnerships “with Ageas in Insurance Broking and NatWest Boxed in Money.” Tapping into the expertise of other financial services companies could help this part of the business grow rapidly in the coming year.

The stock also jumped after the update revealed net debt will be “significantly lower than the prior year, an improvement on previous guidance.” This is always a positive for investors, as it reduces financing costs that can eat into cash flow and profits.

The pace of growth from here

For investors who missed the recent surge, the question is how much further this run can go. Over the past year, the stock has been up 335%. Valuation is one risk going forward, as the price-to-earnings ratio is 23.66, well above the index average and above my fair value benchmark of 10.

However, the company’s market cap is £790m, which means it has scope in the medium term to grow further as it’s not a massive firm. This could include promotion to the FTSE 100, something that would attract even more investor attention.

One risk to note is the cyclical nature of the travel industry. For this division of Saga, an economic downturn could hit bookings and profitability.

I still think the company is a good long-term purchase, but I believe investors might want to consider allocating a small amount, which can be increased if there are any short-term corrections to aim for a better average purchase price.

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What’s behind the sudden surge? And is it too late for investors to hop aboard the gravy train?

What’s going on with Saga?

For most of January, Saga shares were pretty much flat. It wasn’t until the end of the month that the stock started taking off, triggered by a significantly better-than-expected trading update.

The group smashed past analyst expectations, with pre-tax profits now on track to surpass previous expectations. At the same time, the subsequently boost to cash flow means that Saga’s long-time troubling debt is also falling faster than anticipated.

Digging deeper, a big driver of this surprise growth appears to stem from its Ocean Cruise business. Passenger load factor continues to climb, reaching 93% versus 91% a year ago. But more crucially, the average amount of money generated per passenger per day has also jumped 10% to £394, enabling the group’s expansion of profit margins.

Even River Cruises seems to be delivering impressive results. While the load factor remained stable at 89%, the average daily passenger revenue increased by 7% to £349. And a quick glance at Saga’s packaged holidays segment, passenger volumes and spending were also up by double digits.

What’s more, looking ahead to early bookings for 2027, the current upward trend seems to be continuing. And with revenues, cash flows, and profits all marching higher, management has declared that Saga has officially “passed its peak leverage point”.

In other words, the business appears to be in full recovery mode. And with the FTSE stock still trading at a modest valuation, there could still be ample room for investors to profit.

What to watch

There’s no denying that the momentum behind Saga shares is impressive. And since we’re still in the early days of what could be a multi-year recovery, it’s easy to see why more investors are seeing Saga shares as some of the best to buy today.

However, while the growth prospects are undoubtedly exciting, it’s important to recognise that there remains considerable execution risk.

Even with the group moving past ‘peak leverage’, the firm’s outstanding debt pile nonetheless remains pretty substantial. In fact, as of July 2025, the net debt position stood at £515.1m, placing the group’s leverage ratio at a concerning 4.3. For reference, anything above two is typically viewed as troublesome.

Paying down its debts will be a top priority. But if older consumers start cutting back on discretionary travel spending, Saga’s current bookings momentum could slow. In this scenario, cash flows could slump, drastically slowing the firm’s deleveraging efforts.

Nevertheless, for investors with a higher risk tolerance, Saga shares could still be worth a closer look. And it’s not the only turnaround opportunity I’ve got on my radar right now.

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A long story

But the group’s share price has been volatile. Aside from the pandemic — when its cruise ship business was badly hit — a look back over the past 10 years shows two periods of significant decline.

The first was in December 2017, when the collapse of Monarch Airlines affected its travel business. Then in April 2019, it cut its dividend and announced a “fundamental change” to its strategy promising to return the business to its heritage and create an “organisation that offers differentiated products and services”.

Since then, the group’s share price has tanked over 80%, reflecting the fact that it’s now a much smaller business. During the year ended 31 January 2019 (FY19), it reported an underlying profit before tax (PBT) of £180.3m. For FY25, it was £47.8m.

But it’s the recent past that counts most. Since October 2024, the stock’s more than doubled in price. And if this momentum can continue, it should soon be back in the FTSE 250 for the first time since June 2019.

Right place, right time

And given that its target demographic is forecast to grow over the coming decades, I believe this is possible. At the moment, it’s estimated that 40% of the UK’s population is aged over 50. By 2065, this is expected to rise to 46%. Indeed, without realising it, age has crept up on me. I’m now one of the group’s target customers!

In my experience, older people are less price sensitive and remain loyal to a particular brand or company if they receive great customer service. And that’s how Saga seeks to differentiate itself.

But there are issues.

Highly geared

Although it’s been falling in recent years, the group still has relatively high borrowings. As of 31 January, its net debt was 4.7 times its adjusted EBITDA (earnings before interest, tax, depreciation and amortisation).

And the group last paid a dividend in November 2019, as it’s been prioritising reducing its debt.

I wouldn’t be surprised if Saga returned soon to the FTSE 250 following an absence of over five years. The recent trend in its share price suggests investors are beginning to warm to the company. Indeed, one person who appears to have great confidence in the business is its chairman. In September, Sir Roger De Haan purchased £3.29m of shares. He remains the group’s largest shareholder. But I don’t want to follow suit.

Saga appears to be a business of two halves. The load factor for its cruises is rising and it’s selling more holidays. However, the number of active insurance policies is falling. In FY25, underlying PBT in the group’s travel business increased by 59% from £40m to £63.6m. But it fell 58% — from £34.5m to £14.5m — in its insurance division. This makes me wary. And I remain concerned about its large debt burden. For these reasons, I won’t invest at the moment.

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The perfect storm

The firm has been buffeted by a perfect storm of adverse factors, each compounding the other’s impact. Brexit uncertainty cast a long shadow over consumer confidence, particularly affecting the core travel business.

Then came the knockout punch: Covid-19. The pandemic proved fairly catastrophic for cruise and travel operators, with ships impounded and bookings evaporating almost overnight. Just as the dust began to settle from this unprecedented disruption, management found itself grappling with high inflation and a cost-of-living crisis, squeezing both its customers’ disposable incomes and its own operating costs.

The latest annual results lay bare the extent of its struggles. Revenues have slumped 10% compared to pre-pandemic levels, limping in at £754m. More alarmingly, the company posted a substantial loss of £113m. The firm was forced to turn to shareholders to raise £195m. This cash injection, while necessary, came at the cost of dilution for existing shareholders. Although the number of shares only increased by 2.2%, it’s one of my biggest red flags.

Glimmers of hope?

Despite the gloomy outlook, some analysts see potential for a turnaround. They point to the UK’s ageing population as a demographic advantage that plays into the core market of over-50s consumers. This trend could provide a growing customer base, offering a glimmer of hope amidst the gloom.

Management has taken steps to streamline operations, including exiting unprofitable tour operating channels and implementing a significant workforce reduction. These moves aim to trim £35m in annual costs.

With a price-to-sales (P/S) ratio of just 0.2 times, compared to an industry average of 1.1 times, some might argue that the market has overreacted, potentially creating an opportunity for those willing to weather the storm. Adding to the intrigue, some analysts forecast a return to profitability as soon as next year.

The road ahead

While there are reasons for cautious optimism, the path to redemption is far from clear. The company’s £798m debt burden severely limits its financial flexibility and ability to invest in much-needed growth initiatives.

The broader economic picture adds another layer of uncertainty. Ongoing cost-of-living pressures could dampen demand for travel and discretionary offerings, just as the company attempts to regain its footing.

Management must execute flawlessly in a complex and unforgiving operating environment, with little room for error.

My verdict

For many, Saga’s depressed share price might represent an intriguing opportunity. The company’s strong brand recognition in the over-50s market could easily provide a foundation for recovery.

However, given the significant challenges faced, and the dilution of shareholder value, more conservative investors might prefer to watch from the sidelines. The company’s turnaround story remains in its early stages, and concrete evidence of sustainable improvement will be crucial before many consider an investment.

The Saga story serves as a stark reminder that even well-established companies can struggle, and recovery, while possible, is never guaranteed. I’ll be avoiding this one for now.

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What happened?

The firm has been buffeted by a perfect storm of adverse factors. Brexit uncertainty dented consumer confidence and travel demand, while increased competition in its core insurance business from upstart digital rivals took a toll. The pandemic then proved a huge body blow, with cruise ships impounded and travel bookings disappearing almost overnight.

Although travel has recovered as Covid fears have receded, the firm is now battling a variety of economic factors. These include the high cost of living, significantly squeezing its customers’ disposable incomes and raising its own costs.

The company’s latest annual results summed up the struggle. Revenues were down 10% versus pre-pandemic at £754m, with a £113m loss. With losses mounting, management was forced to tap shareholders for a whopping £195m in a deeply discounted rights issue to bolster its finances. Even after this cash injection, the balance sheet remains leveraged with £770m in debt.

Signs of optimism

So is there any light at the end of the tunnel for long-suffering investors? The company is taking steps to downsize, exiting some uneconomic tour operating channels and reducing headcount by 18% to save £35m annually. It sees growth opportunities in areas like private medical insurance and home services tailored to its core over-50s demographic. This is somewhat reassuring, with population demographics suggesting this could be a real boom area in the future.

Let’s take a look at the numbers, namely the price-to-sales (P/S) ratio, since the company is unprofitable. The ratio of 0.2 times is much lower than rivals in the sector, with a ratio of about 1.1 times. There is clearly a lot of negativity around this company, but at some point, the share price could start to make sense to even the most sceptical investor.

Analysts generally forecast a return to profitability next year. The company itself forecasts very healthy annual growth in earnings of 50% over the coming years. This is well above the average of the sector at 12.3%, but estimates have proved wildly unreliable when it comes to the company. “Saga remains in turnaround mode but visibility is low“, one broker cautioned. Even if profits recover, the heavy debt load could mean any gains get captured by creditors rather than equity holders.

Overall

With the Saga share price trading at just a quarter of its 2017 peaks, some contrarian value investors may be tempted to take a gamble on a turnaround. But the road ahead looks challenging. With intense competition from younger, digital-savvy rivals, economic challenges, and a precarious balance sheet, I’m not hopeful. Shareholders have endured a trying odyssey — and their battered investment may unfortunately never regain its former glory days. I’ll be staying clear for now.

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Retailer WH Smith (LSE: SMWH) posted a commonplace ‘Trading Statement’. Over-50s travel and insurance specialist Saga (LSE: SAGA) issued a more intriguingly titled ‘Response to Media Coverage’.

The two firms’ share prices moved in opposite directions on the day, but their longer-term charts are remarkably similar. In particular, they’ve declined severely since making post-pandemic highs in the first half of 2021.

Furthermore, they share this similarity with a number of other stocks whose businesses have a feature in common with them.

And I reckon digging into this bunch of unloved stocks could be a profitable exercise for value seekers.

Heavy fallers

Let me start by detailing just how out of favour WH Smith and Saga are.

Smith’s shares made a post-pandemic high of 2,016p in March 2021. They ended Friday 39% below that level at 1,224p. Over the same period, the FTSE 100 rose 13%, meaning WH Smith has underperformed the UK’s top index by 52%.

Saga’s performance has been worse still. Its shares made a post-pandemic high of 456p in June 2021. They closed on Friday at 156p — down 66%. And they’ve underperformed the Footsie by 74%, the index having moved 8% higher over the same timescale.

Growth

There were notable positives in both companies’ updates on Friday.

WH Smith reported a strong performance from its large travel division (74% of group revenue last year). The business enjoyed growth of 16%.

Management highlighted the opening of its largest UK travel store at Birmingham airport, the first of six stores at Budapest airport, and a strong airport store opening programme in North America where it has substantial growth opportunities.

More growth

Similarly, Saga said on Friday that it’s seeing exceptional demand for its boutique ocean cruises and that its ships are operating at close to capacity.

In a further update this week, it said it expects ocean cruise revenue growth for the year of around 30%. And across its entire cruise and travel division (55% of group revenue last year), it sees growth of 40%-45%.

High street and insurance

Of course, WH Smith and Saga both have businesses beside their travel divisions.

WH Smith’s high-street estate is ex-growth and is being tightly managed for its not unattractive cash-generating power. Meanwhile, Saga’s insurance division is currently challenged by a market-wide inflationary environment and declining policy volumes.

My first thought was that these parts of the two companies’ businesses must be holding back investor sentiment, despite the very strong growth in their larger travel divisions.

The market hates travel

And yet when I look at the stock charts of pure-play travel companies, they mirror the charts of WH Smith and Saga.

This is true of SSP Group, a leading operator of restaurants, bars and cafes in travel locations across 36 countries. It’s just released a strong trading update. Cruise ships giant Carnival is another. This one’s recently reported a year of record revenue.

And so it goes on with airlines and package holiday firms, including easyJet, International Consolidated Airlines, Jet2 and On The Beach Group.

It seems the market hates all things travel at the moment. And that could spell o-p-p-o-r-t-u-n-i-t-i-e-s for contrarian value investors.

Pick and choose carefully

I think investors need to pick and choose carefully. The profiles of risk and reward vary from company to company.

Debt is a risk I’m particularly wary about right now. The cost of borrowing was next to nothing for years, but interest rates are now much higher. This makes it more challenging for companies to refinance their borrowings and service their debt.

Which brings me back to Saga and WH Smith.

Uncomfortable versus manageable

Saga’s ‘Response to Media Coverage’ on Friday referred to a Sky News story. This claimed the board is exploring ways to release money from its ocean cruises operation to reduce the company’s large debt pile. It could involve “selling its two flagship vessels or offloading the entire business under a licensing arrangement.”

Saga confirmed it’s ‘exploring opportunities’ and that a ‘partnership arrangement’ is its current preference. There’s no certainty it’ll find a partner, but releasing cash from the cruise business — by one means or another — would certainly help lighten its crushing debt load.

In contrast, WH Smith’s borrowings look very manageable.

So, to reiterate, while I think there could well be opportunities among battered travel stocks, I also think investors need to carefully weigh different levels of risk and reward among the various companies.

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Volatile share performance

For some investors who bought in the past half year, the results have been very strong. Between October and February, for example, Saga shares increased in value by over 150%. Since then, however, they have fallen back over 30%. Over the course of the past year, the shares have sunk 46%.

Today saw the company announce its unaudited preliminary results for last year. As I write, the shares are down around 8% in response.

Mixed business trends

That reaction might suggest the results are bad, though not terrible.

I think they are a mixed bag. On the positive side, annual revenue jumped 54% to over half a billion pounds, while the company moved from loss to profit at the underlying level. With demand for travel coming back in a big way, that division saw annual revenues jump more than tenfold. The company also cut its net debt by 2%. That is a small decrease — but I see it as a step in the right direction.

However, not everything looks great about the business.

Net debt stands at £712m. The pandemic and related restrictions were disastrous for a business focussed on selling travel and insurance to a group of people many of whom are no longer in peak physical condition.

Borrowing helped Saga through dark times but at some point those debts will need to be repaid. At a time of rising interest rates, £712m is a sizeable debt pile for a company that made an underlying profit of £22m last year.

The headline loss was also sizeable, at £259m after tax. However, that was largely driven by an accounting writedown of goodwill in the insurance business, reflecting the changed environment in which the business operates. Saga was actually cash flow positive last year.

Are the shares a bargain?

I have always liked the business model thanks to its focus on a specific, underserved and often well-heeled customer group.

As the return to underlying profitability shows, Saga is in recovery mode. I think the business can do well in future. But as an investor, what concerns me is the debt load. Saga has a market capitalisation of only £175m – less than a quarter of its net debt.

For Saga shares to do well in the long term, I think there needs to be ongoing business recovery and substantial debt repayment. That may happen in coming years, but it is far from assured.

The pandemic showed the fragility of the Saga business model in the case of an unforeseen collapse in travel demand. Such sudden downturns in the travel market remain an ever-present risk. Meanwhile, debt servicing costs could increase in the current interest rate environment.

So although I like the underlying business model, the balance sheet puts me off buying Saga shares.

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The shares got an extra boost from a full-year update this week. The company said it “expects to report significant growth in revenue“. That should amount to an increase of between 40% and 50% compared to the prior year. And it’s thanks to a recovery in the cruise and travel business.

Profit before tax should be between £20m and £30m. That’s still some way short of profit levels from before the pandemic. But considering the added pressures from inflation and interest rates, I think it’s an impressive performance.

Disposal

In other news the same week, the company confirmed it’s discussing the possible disposal of Acromas Insurance Company.

That highlights what I see as one of Saga’s key long-term strengths. It’s not just a cruise and travel operator. That can be a capital-intensive business, and can lead to a lot of debt on the balance sheet. At the halfway stage at 31 July, Saga reported net debt of £721m. For a company with a market cap of just £256m, I find that seriously concerning.

As well as the risk brought by debt during tough economic times, it makes share valuation harder. For the year ending 2024, forecasts put Saga on a price-to-earnings (P/E) multiple of under seven. On the face of it, that might make it look like a screaming buy.

Adjusted valuation

But by including net debt in the calculation, we can arrive at an adjusted P/E for the business itself. Based on the same 2024 forecasts, it comes out at around 25. Suddenly, it doesn’t look like quite the no-brainer any more.

The P/E should hopefully keep coming down if Saga’s recovery continues to make progress. But that recovery needs to span a dark economic period. High inflation, high interest rates, supply chain problems, geopolitical strife… all will surely be with us for some time yet.

Business model

Against that background, I do like the insurance side of the business. It’s potentially less capital intensive, even if still a bit pressured by an economic squeeze. I’m not too worried by the possible disposal of Acromas, which Saga says underwrites around 25%-30% of its insurance business.

The company reckons a disposal would still be “in line with the evolution to a capital-light business model and the stated objective to reduce debt“.

Verdict

So, does Saga’s recovery make it a no-brainer buy? Well, I think the economic risks it faces keep it well away from that description for me.

I like the evolution of the company, and its diversification into travel-related services. But the valuation holds me back, particularly when I account for debt.

We’ve seen numerous tentative recoveries recently that fell back again. And I can’t help fearing that this might turn into another. I do believe I see long-term potential, but I’ll wait for the short-term risks to play out.

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The provider of services such as insurance that specialises in customers aged over 50, has seen sales collapse and made losses for four years on the trot. The Saga share price has fallen 40% in a year. Over five years, the picture looks even worse, with a 90% decline.

But has the company turned the corner, meaning it could now be a bargain for my portfolio?

Upbeat trading statement

Losing money for four years in a row is a red flag for me. I aim to invest in firms with a proven business model. Consecutive losses like this raises a concern in my mind that the Saga business model lacks robustness.

But the company issued an upbeat trading statement this morning, covering a period from August until this week. It expects revenue to show growth of 40-50% compared to the prior year period. It said it remains on track to report underlying profit before tax for the full year of £20m-£30m.

Strong recovery in its cruise and travel businesses are helping Saga to build its revenues again. Cruise revenue for the year is expected to double compared to last year.

The insurance business is looking less healthy though. Policy sales in the insurance broking division are declining. The underwriting business is grappling with double digit percentage claims inflation.

Unconvincing business model

On paper, I think Saga has brilliant potential as a business. Its focus on a particular demographic that often has specific, costly needs and money to spend on solutions for them could be very lucrative.

But the business has struggled to deliver on this potential. Net debt stood at £721m at the interim stage and is expected to end this month slightly higher than that. Discussions with lenders have improved Saga’s flexibility in managing its borrowings, but its balance sheet remains alarming to me for a lossmaking company with a market capitalisation of £222m.

The positive figure for underlying profit before tax may sound like good news. However, I prefer to focus on the reported profit not the underlying one. Last year, for example, an underlying pre-tax loss of £6.7m compared to a much larger reported pre-tax loss of £23.5m. The prior year saw an even more dramatic disparity, with an underlying profit before tax turning into a £61.2m pre-tax loss on a statutory basis.

More work to do

Saga is not out of the woods as a business despite surging sales revenues. Its core concept of focussing on the well-heeled older market for big ticket purchases like insurance policies and cruises remains appealing to me. In the past it was very profitable for the firm. Soaring sales could help that happen again, potentially boosting the Saga share price.

For now though, the company is heavily indebted and has a history of losing money in recent years. While demand for travel is recovering, it remains below pre-pandemic levels. Saga’s insurance business could see profits squeezed from a challenging market environment.

I am not convinced the Saga share price will turn out to be a bargain. I do not like its risk profile or debt pile and will not be adding the company to my portfolio.

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