Over the past five years, shareholders of Saga (LSE:SAGA) have endured a pretty brutal odyssey. The company, which provides package holidays, cruises, insurance, and financial services targeted at the over-50s market, has seen its share price plummet by a staggering 85% since 2019. Can the Saga share price ever recover, or is this once-proud market darling destined to fade into obscurity?

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.