The Saga (LSE: SAGA) share price has fallen heavily this year. Indeed, the stock is down around 60% year-to-year, substantially underperforming major stock indexes like the FTSE 100.
It’s easy to see why investor sentiment towards the company has soured this year. Saga was in the middle of a dramatic business overhaul when the coronavirus crisis hit, which has caused severe problems for the group.
But, according to the firm’s latest trading updates, it appears as if Saga’s customers are still standing by the business. This may increase the chances of a strong recovery over the next few years.
Saga share price on offer?
Over the past two years, the company has been undergoing a dramatic transformation programme. And this overhaul has weighed on the Saga share price.
The group, which provides specialist products and services aimed at the over 50s market, was trying to move away from its insurance and financial services business, to more predictable and profitable services such as cruise holidays.
The company had only really just started taking bookings for its new cruise vessels when the coronavirus outbreak hit. To try and contain the spread of the epidemic the entire cruise industry has been effectively shut down.
So Saga’s travel business has been on pause since mid-March. However, according to its latest trading update, customer loyalty has been “exceptional” during this time. Some 70% of customers who were booked on holidays have decided to rebook for next year, rather than cancel entirely.
This suggests that when the cruise business is able to restart, profits may explode higher. That should be a positive for the Saga share price.Â
At the same time, the group’s performance in financial services has been strong. The number of motor and home insurance policies written increased by 1% between February and June. Also, the company is benefiting from the lack of claims as customers have been forced to stay at home.
Future growth potential
All the above suggests the Saga share price has plenty of future growth potential. Despite the company’s current problems, it seems as if customers are willing to overlook the short term uncertainty and fork out for holidays in the future.
As it hasn’t had to spend millions refunding customers, Saga’s balance sheet is more durable as a result. Having additional liquidity means the company is in a stronger position than many of its peers in the travel industry. Several of these companies have had to raise emergency funding from creditors to try and survive the pandemic.
As such, while investor sentiment towards the Saga share price is depressed at present, this could be an excellent opportunity for long-term investors to buy a share of this high-quality business at a discounted price.
Doing so may not lead to high returns in the short run. But, the high demand for Saga’s cruise offering in the years ahead suggests the stock could yield high long-term total returns.