Saga (LSE: SAGA) shares have produced incredible gains recently. Over the last year, they’ve climbed about 225% – the best performance within the FTSE 350.
That doesn’t tell the full story though. Because over two years, gains stand at a mind-blowing 680%.
Surely the shares can’t keep rising after these kinds of blockbuster gains? Or can they?
An incredible turnaround
Saga is a classic turnaround play. After experiencing some major operational challenges, the company has been able to turn things around.
Rewind to a few years ago and the company was a complete mess. Not only was its insurance business underperforming but its travel division was also struggling (Covid really hurt this side of the business).
This mess can be seen in the company’s income statement. For FY23 (the financial year ended 31 January 2023), the group posted a net loss of £273m.
That was after net losses of £28m, £68m, and £313m in the prior three financial years. Clearly, it was experiencing some major challenges.
Profits are surging
Recently however, we’ve seen a dramatic improvement in overall performance. Last financial year (FY26), the company managed to generate a small net profit (£3.6m) instead of a net loss.
This financial year (FY27), analysts expect profits to soar. Currently, they’re anticipating a full-year net profit of £68.5m.
As for what’s driven this turnaround, a restructuring of the insurance business is a key factor. By partnering with insurance specialist Ageas for underwriting and claims, the company has been able to simplify its operating model.
Strong demand for cruises and holidays is also helping. This is boosting revenues and profits on this side of the business.
“Profitability has increased significantly in the first half of the year and we expect this to drive a strong full-year outcome, ahead of our previous guidance.”
Saga CEO Mike Hazell in the H1 results
Can Saga shares keep rising?
Could we see further gains from here? Well, I wouldn’t rule them out.
Profits are surging as I mentioned, and the company is targeting further profit growth in the years ahead. In the medium term, it’s aiming for underlying profit before tax of £100m versus £44.2m last financial year.
“Having successfully navigated the challenges faced by both our Travel and Insurance businesses in recent years, I believe we are now in a strong position to make the most of the opportunities ahead of us.”
Saga Chairman Sir Roger De Haan in September
On the downside, Saga’s valuation is starting to look quite full. Looking at current earnings forecasts, the price-to-earnings (P/E) ratio is about 18.7 – this earnings multiple could limit gains.
Another factor that could limit gains is the leverage ratio. This stood at 2.7 times as of 31 July, which is not ideal in a high-interest-rate environment.
Ultimately, gains from here are likely to depend on the company’s results. If they continue to be strong, the shares could keep climbing.
Personally, I’m cautiously optimistic in relation to the outlook. So, I reckon the shares are worth considering.
Should you invest £5,000 in Saga Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Saga Plc made the list?
Edward Sheldon does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
