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.

The post This FTSE 250 stock has just fallen to a 52-week low. Here’s why I’m buying appeared first on The Motley Fool UK.