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These growth stocks are trading at big discounts

It may sound somewhat unlikely that any stock is trading at a significant discount to its intrinsic value at the present time. After all, the FTSE 100 is close to a record high and could move higher in the coming months. Much of that may be due to a weakening pound, although investor sentiment appears to be bullish regarding the long-term outlook for the global economy.

Even in these conditions though, there are still a number of stocks which appear to be undervalued. Here are two prime examples which could be worth a closer look.

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Encouraging start

Reporting on Tuesday was home collected credit lender Morses Club (LSE: MCL). The company announced that its trading performance since the start of the year has been in line with previous expectations. Its net loan book and customer numbers have increased, while impairments are still within its guidance range. This is reflective of the company’s greater focus on higher-quality lending, while territory builds have also contributed to loan book growth.

The company has launched its first online instalment loan product called Dot Dot. Its customer applications are on track, with it offering greater access than its more traditional products. With the receipt of full FCA authorisation and an increasingly flexible product base, it seems to have a relatively bright future.

In fact, Morses Club is forecast to increase its bottom line by 7% in the current year, followed by further growth of 15% next year. This puts its shares on a price-to-earnings growth (PEG) ratio of only 0.7, which suggests they could offer capital growth potential. Furthermore, with a dividend yield of 5.2% which is covered 1.7 times by profit, it could become increasingly popular as an income play – especially with inflation moving higher.

Low valuation

Also offering a wide margin of safety is non-performing loan collection specialist Arrow Global (LSE: ARW). It has delivered three consecutive years of earnings growth, and its future prospects appear to be relatively bright.

With inflation moving higher, the pressure on consumers could increase and lead to higher demand for the company’s services. This is reflected in its forecasts, with Arrow Global expected to report a rise in net profit of 28% in the current year, followed by further growth of 25% next year. This puts it on a PEG ratio of only 0.4, which suggests that its shares could offer excellent value for money.

Although Arrow Global currently yields just 2.8%, its dividend growth prospects are strong. Its shareholder payouts are expected to be almost 60% higher in 2018 than they were in 2016, which puts it on a forward yield of 3.6%. Since dividends are due to be covered 2.9 times by profit, there is scope for further increases in shareholder payouts. This could make the company more popular among investors from an income perspective, which adds to its current value and growth appeal.

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Peter Stephens has no position in any shares mentioned. 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.