This FTSE 250 stock has just fallen to a 52-week low. Here’s why I’m buying

Rupert Hargreaves explains why he thinks this FTSE 250 (INDEXFTSE: MCX) stock could be a hot buy today.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The recent market volatility has thrown up some fantastic bargains for Foolish long-term investors. For example, over the past few weeks, shares in Paragon (LSE: PAG) have crashed to a 52-week low. And rather than following the herd, I believe now could be the perfect time for investors to snap up shares in this undervalued financial services business.

Unloved growth

Back in Mid-may, shares in Paragon were changing hands for high of just under 550p. Unfortunately, it didn’t take long for the stock to start coming off the boil. By the end of September, the stock had slumped nearly 25% from that all-time high.

In my view, this decline is unwarranted. Fundamentally, the business hasn’t changed over the past few months. The last time management reported on trading to the market it told investors the group is still firing on all cylinders and “continues to operate in line with the board’s expectations.

Management hasn’t issued a specific earnings growth target for 2018, but the City has pencilled in earnings per share (EPS) growth of 13%. I’m inclined to believe that when the final figures are published, Paragon may beat expectations, as analysts have been steadily increasing their growth estimates for the group over the past 10 months.

But what really attracts me to the shares is the valuation. The stock is currently changing hands for just under nine times forward earnings, falling to eight times for 2019. With EPS growth set to average 11% per annum for the next two years, I reckon the stock should command an earnings multiple that is at least equal to earnings growth.

On top of Paragon’s discount valuation, the stock also supports a dividend yield of 4.4%, and the payout has grown at a compound annual rate of 21% over the past five years. 

So overall, after recent declines, Paragon looks both cheap and offers a market-beating dividend yield. That’s why I rate the stock a ‘buy’ today. What’s not to like?

Emerging market play 

Georgia Capital (LSE: CGEO) is another financial stock that has also appeared on my radar recently and looks undervalued. 

This is quite a unique business. It is a holding company for a group of companies in Georgia, which manage everything from utilities to home construction and insurance products. This structure means it has more in common with a private equity business than financial services enterprise. As a result, I think it is more sensible to value the company based on its net asset value (NAV) than its earnings growth.

Using this metric, the stock appears to be undervalued by around 8%. According to a trading update published by the group earlier today, NAV per share was 44.6 Georgian Lari at the end of the third quarter, which works out at around 1,302p when translated back into sterling.

That being said, I wouldn’t expect this stock to trade at its precise NAV due to the risks of operating and investing in an emerging market.

Still, if you’re looking for exposure to one of Europe’s fastest-growing economies, I reckon it could be worth spending some time to understand Georgia Capital and its long-term potential.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share 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.

More on Investing Articles

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »