Investors have been rushing to the Saga (LSE: SAGA) share price during the past few weeks. Following the completion of the company’s fundraising, the stock has jumped by more than 100% in just a few weeks.
And I think this could be just the start of a long rally for the stock. That’s why I’m considering adding the shares to my portfolio today.
Saga share price performance
I think it is fair to say 2020 was not the year Saga was expecting. The company, which has been trying to turn itself around for seven years, was betting that the launch of its new cruise business would help return it to growth. Unfortunately, with the new fleet, and the rest of the cruise ship industry mothballed for 2020, this hasn’t happened.
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So, management has had to get radical. Saga undertook a huge capital raising to strengthen its balance sheet. At the same time, a management clear-out brought new and old blood back to the board.
Positive trends have also started to develop in the group’s non-cruise businesses. These divisions have been a thorn in the side of the company for some time. However, green shoots are starting to show. This is highly encouraging. While 2020 has mostly been a washout for the organisation’s new cruise business, other divisions have begun to pick up the slack after years of problems.
These trends suggest to me that when the world is back up and running, the Saga share price may take off. The combination of new sales from the cruise business, as well as growth in existing divisions, could provide some significant growth tailwinds.
Growth tailwinds
It’s difficult for me to predict, at this stage, what sort of growth the company will be able to achieve going forward. However, City analysts reckon the firm will report earnings per share of 37p for its 2022 financial year. Compared to the current stock price of 300p, this suggests the shares look cheap at current levels.
That being said, there’s no guarantee the company will hit analysts’ projections. A lot could go wrong between now and 2022. However, I think the predictions clearly show the Saga share price’s potential. In the best-case scenario, analysts reckon the group could earn up to 70p per share for 2022.
Either way, it seems to me as if the stock is deeply undervalued at current levels and offers a wide margin of safety. That’s why I’m considering the investment for my portfolio today. In the base-case scenario, the stock looks cheap, and in the best-case scenario, it looks even cheaper.
Based on these projections, I think the Saga share price offers an attractive risk-reward profile. That’s exactly what I’m looking for when making an investment — the potential for large capital gains and minimal risk of loss at the same time.
