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This FTSE 250 growth stock has crashed 15% today. I’d buy it anyway

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Recruitment specialist PageGroup (LSE: PAGE) has crashed 15% today after warning investors of the impact of trade wars and Brexit on its bottom line. That kind of price drop will tempt many long-term investors, though.

A new Page

The FTSE 250 company warned that 2019 operating profits will be towards the lower end of market forecasts, “given current macro-economic conditions”, which overshadowed good news elsewhere in today’s trading update. Highlights included 7.4% growth in Q2 group gross profit to £224.6m, amid a record quarter for the group, as 16 countries grew by more than 10%.

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The £1.41bn group has a truly international spread of businesses covering the Americas, Europe, the Middle East, Africa and Asia-Pacific. Inevitably, some are doing better than others, with gross profit in Germany up 24%, North America up 19% and Latin America up 15%.

This offset a 2.4% drop in the UK and 1% in Greater China, which was largely down to the impact of Brexit and the US trade war. It retains a strong balance sheet, though, with net cash of £81m, up from £76m in Q1.

Recession fears

However, it has been forced to retrench, reducing its fees and headcount by 122, “to react to market conditions”. This marks a reversal on last year, when it added 619 fee earners, and 41 in Q1. The drop focused on its most challenging markets, namely France, Greater China and the UK, but it continues to invest elsewhere, particularly the US and India.

The Page Group share price is now down 27% on last year but this could be a buying opportunity, as its forward valuation is now down to 14 times earnings. Its forecast dividend yield is now 5.8%, with cover of 1.2, making this a top dividend stock. Return on capital employed is almost 50%, another good sign. The big worry is that the world falls into recession, squeezing the jobs market and recruitment. I can still see a strong buy case, although things could get tougher before they get better.

Happy at home

Investors have given today’s Q4 results from home furnishings retailer Dunelm Group (LSE: DNLM) a much calmer reception, with the share price flat despite a 15.4% rise in total like-for-like quarterly revenue and a generally positive tone to the results.

The FTSE 250 group said growth reflected strong underlying growth in stores and online”, helped by last year’s weak comparator period and favourable weather. These results covered the 13 weeks to 29 June, when the summer weather was patchy and people hit the shops instead. The current warmer weather may reverse that.

Nicely furnished

Dunelm, which has around 170 superstores and three high street stores, has defied the calamitous retail slowdown and its share price is up 80% over 12 months as a result. It is shifting business online and here growth is good, up 37% on a like-for-like basis in Q4. Online revenues totalled £39m against £205.5m for its stores, making this a small but fast-growing segment.

The £1.79bn group is inevitably a bit pricey after recent strong growth, trading at 18.3 times forward earnings, while yielding 3.2%. Full-year profits are expected to be at the upper end too, while brokers are talking about a special dividend in the autumn. It faces tough competition, though.

CEO Nick Wilkinson has warned of a short-term impact of the “uncertain political climate” on consumer spend, but otherwise the future looks bright.

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Harvey Jones has no position in any of the 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.

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