The Saga share price continues to slide. Should I buy now?

Risk reward ratio / risk management concept

The Saga (LSE: SAGA) share price has been on a steady decline over the past few weeks. After reaching a 52 week high of around 456p in the latter part of June, the stock has slumped to 359p. That’s a dip of around 21%.

However, over the past 12 months, shares in the over-50s travel and finance specialist are up a sterling 73%.

Over the past year, I’ve repeatedly said Saga’s reputation and diversification will help it navigate the crisis and provide solid foundations for the group to stage a recovery after the crisis. I continue to believe this is the case. That’s why I’d be tempted to buy Saga for my portfolio today. 

Saga share price outlook

However, I’m also well aware that trying to predict the stock’s near-term movements is impossible. And there’s no telling how the stock will perform over the next few weeks, months, or even years. That said, in theory, a stock price should track the performance of the underlying business in the long run. 

Therefore, if Saga’s sales and earnings start to recover from their pandemic slump during the next few quarters, the stock should also achieve a positive performance. 

And it looks as if the company’s outlook is improving. Towards the end of June, Saga Cruises resumed sailings for the first time since the pandemic began in March 2020.

In a trading update published ahead of its annual general meeting in mid-June, the company noted that cruise load factors for its current financial year were around 77%. Meanwhile, other booking numbers were ahead of expectations, it noted. 

A load factor of 77% might not seem that impressive, but considering the industry has been in shutdown for over a year, it’s a drastic improvement. Indeed, in the buildup to reopening, the Saga share price outperformed the market.

It seems the group’s first cruises of the year have gone to plan. A slate of voyages is scheduled for August, and if these perform without a hitch, I think the company is likely to return to growth this year. 

Growth ahead

Considering all of the above, I think Saga is on track to return to growth in 2021. This could translate into a higher share price as investor confidence in the business returns. 

That said, the company’s growth isn’t guaranteed. Another virus wave could really set back reopening plans. And this would almost certainly harm the Saga share price. 

Further, it could be two or three years before the company can achieve full capacity on its cruise ships. In the meantime, earnings will continue to remain depressed. 

Despite these risks and challenges, I think the stock offers an attractive risk/reward profile today. That’s why I would buy it for my portfolio as a recovery play.

The post The Saga share price continues to slide. Should I buy now? appeared first on The Motley Fool UK.

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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.