When it comes to earnings growth, the track record of RBS (LSE: RBS) is not particularly impressive. The company has experienced a hugely challenging decade, with it delivering losses in a number of years and struggling to come to terms with legacy issues.
However, its future could be much more appealing than its past. The bank is expected to report improving earnings figures over the medium term, and this has the potential to boost its share price performance. But it’s not the only financial services stock that could be worth buying right now.
Reporting on Friday was institutional securities company Cenkos (LSE: CNKS). It released full-year results for the 2017 financial year which included a rise in revenue of 36%, as well as a profit after tax on continuing operations rise of 155%. This has enabled it to increase dividends per share from 6p to 9p, which means that it could offer significant income opportunities. In fact, with a dividend yield of 8.3%, it could deliver inflation-beating performance over the long run.
However, it is the company’s growth potential which may act as the biggest catalyst on its share price. It is due to increase earnings by 164% in the current year. And with it trading on a price-to-earnings growth (PEG) ratio of just 0.1, it seems to offer significant upside potential.
Certainly, the markets in which Cenkos operates are experiencing a period of significant volatility. This could create downward pressure on its share price in the near term. But in the long run the company appears to offer a potent mix of growth, value and income potential.
RBS also has a bright future according to its forecasts. It is expected to post a rise in earnings of 12% in the next financial year, which could show investors that the business is gradually moving on from the legacy issues it has faced in recent years.
Despite its impressive growth outlook, the stock has a PEG ratio of just 0.8. This suggests that it offers growth at a reasonable price and could generate capital growth. Alongside this, it has a forecast dividend yield of 5.2% for the next financial year. This could make it one of the highest-yielding stocks in the FTSE 100, while dividends are due to be covered 2.1 times by profit. This suggests that they are highly affordable and could increase over the medium term without hurting the financial strength of the business.
With interest rate rises expected over the coming years, RBS could enjoy a more positive trading environment. The potential for an improved net interest margin could lead to greater profitability, as well as a higher valuation. Therefore, now could be the perfect time to buy the stock, ahead of what may prove to be a strong turnaround.
Peter Stephens owns shares of Royal Bank of Scotland Group. 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.