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Saga plc isn’t the only bargain growth stock I’d buy today

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It’s been a difficult three months for investors in Saga (LSE: SAGA). The over-50s products and services specialist has seen its share price decline by around 36% during the period, with a disappointing financial performance the reason.

However looking ahead, the company appears to have turnaround potential. Certainly, it could take time for it to deliver improved share price performance. But it could be worth buying alongside another stock which also appears to offer growth at a reasonable price.

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Strong performance

The company in question is the UK’s leading fishing tackle retailer Angling Direct (LSE: ANG). It reported a positive trading update on Friday which showed that revenue for the year to 31 January was ahead of expectations, up 44% versus the prior year. It performed well across its retail and e-commerce divisions, with investment in its online platform and operations resulting in a 54% rise in direct sales.

Clearly, there is uncertainty facing the company. Structural changes in retail buying habits and weakness in the UK consumer outlook could result in greater competition. However, the company remains upbeat about its prospects, with its strong competitive position and the prospect of continued investment both having the potential to aid future performance.

Looking ahead, Angling Direct is expected to report a rise in its bottom line of 63% in the current year. Despite this, it has a price-to-earnings growth (PEG) ratio of just 0.5, which suggests that it may be undervalued at present. With a relatively loyal customer base and a dominant position in what remains a large industry, the company could be a worthwhile buy for the long run.

Return to growth

Of course, the outlook for Saga is still relatively uncertain. The company is due to report a 2% decline in earnings for the current year as it makes significant changes to its management structure and strategy following a disappointing period. But this is expected to have a positive impact on its financial performance, with earnings growth of 2% forecast for next year.

As such, it appears as though the company could take time to return to its previous rate of growth. In the long run though, that looks very achievable. Demand for a range of services among the over-50s is likely to remain buoyant, with an ageing population having the potential to create a tailwind for the company. And with Saga trading on a price-to-earnings (P/E) ratio of 8.9, it seems to offer a wide margin of safety. This could mean that it’s able to offer high capital growth potential in the long run.

The company also has a relatively high dividend yield as well. Following its share price fall, it stands at 7.7% and is covered 1.5 times by profit. This suggests that it’s not only highly sustainable, but could increase in future.

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Peter Stephens owns shares in Saga. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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