Saga share price: more falls to come?

The recent profit warning from Saga sent the shares into a nose dive, but with little sign of a rebound the bears still seem to be in control.

What has happened to Saga?

There is little good news around Saga, either from a fundamental or a technical perspective. The firm had appeared to be in recovery mode, finding new business, but these preconceptions have been rudely shattered.

The firm’s core consumer base, the over-50s, is no longer the aged cohort of popular imagination. The business rose to prominence in the public consciousness in the 1990s (as much as any insurance firm can) as one looking after old people, but that was more than two decades ago. The over-50s now would have been in their thirties then and will have grown up in an increasingly tech-savvy world. Now they shop around more for insurance, and expect the same competitive rates as younger consumers. The firm now has to cut its rates in order to attract new business, which will hit profitability.

Increased spending to win new customers will hit profitability, while its reduction in margins on its more profitable products will also act as a headwind for earnings growth. Saga trades at 5.5 times forward earnings, but this low valuation seems justified given the problems it faces.

Does the Saga share price present a shorting opportunity?

Having gapped lower for the second time in a year, Saga’s share price sits at record lows. With the gloomy news surrounding the shares even short-term rallies may well be selling opportunities. Last time it gapped lower, in December 2017, the price continued to fall, so a careful approach to selling intraday rallies might bear fruit. A sharp rebound is of course a possibility, but this might set up an even more attractive shorting opportunity. A close above the lower end of the April gap lower, 76p, would be needed to provide some kind of a suggestion of a turnaround in the short term.

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