A large number of FTSE 100 and FTSE 250 shares are experiencing challenging outlooks at the present time. The uncertainty surrounding the world economy’s outlook, as well as the risks posed by Brexit, could lead to volatile stock prices over the coming months.
RBS (LSE: RBS) could therefore experience further declines in its valuation after a challenging six-month period. During that time it has fallen by 16%, with investors seemingly requiring a larger discount to its intrinsic value given the difficulties which may be ahead for the UK economy in particular.
Of course, buying shares that have fallen can lead to high returns in the long run. Do I think RBS could therefore be worth buying alongside a growth share which reported results on Monday?
The company in question is Georgia Healthcare (LSE: GHG). It is the largest integrated healthcare company in Georgia, with its revenue increasing by 13% in the first nine months of the year. The performance of the business was strong across all of its divisions, with its healthcare services business continuing to improve and its pharmacy and distribution business delivering an EBITDA margin of over 10% in the third quarter.
The company has continued to invest in staff training, while it has now completed all of its significant development projects except for its Mega Lab project. It is due to become operational this month as it seeks to improve its return on invested capital in each business.
Looking ahead, Georgia Healthcare is forecast to post a rise in earnings of 72% in the current year, followed by further growth of 51% next year. It trades on a price-to-earnings growth (PEG) ratio of 0.3, which suggests that after a successful third quarter it could offer upside potential.
As mentioned, the RBS share price has endured a difficult period. This could continue in the near term, with Brexit risks seemingly high. The UK is a key market for the business, and if confidence is low once Brexit occurs – even if there is a deal in place – it could lead to lower demand for the company’s range of services.
Of course, if the UK does experience a period of financial difficulty, it could be argued that RBS is not in a particularly strong position to overcome it. The government is still a majority shareholder in the bank, while its profitability has lagged some of its sector peers. Its financial strength and efficiency also appear to have some way to go before the bank is back to full health. Therefore, it could be impacted by a recession to a greater extent than some of its industry rivals.
That said, the stock appears to offer a wide margin of safety. It has a price-to-earnings (P/E) ratio of 9.1, which suggests that it could have value investing appeal. Although it has fallen heavily in recent months, further challenges could be ahead in the short run. But with recovery potential, it could prove to be a sound turnaround option for the long run.
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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.