This dirt-cheap growth stock could rise 25%+ within 2 years

While the FTSE 350 may have gained 8% in the last six months, reaching close to a record high, there could still be bargain stocks on offer. Clearly, it may require deeper digging among the various sectors of the index to find dirt-cheap shares. However, I think opportunities exist for 25%+ capital gains by 2019. In fact, reporting on Friday was a company that offers a relatively attractive valuation as well as upbeat growth potential.

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Strong performance

That company is JRP(LSE: JRP). Formerly called Just Retirement Group, it specialises in retirement products and services. Its results for the 18 months to the end of December 2016 show that it is making progress with its current strategy. For example, adjusted operating profit grew 58% in the 2016 calendar year, with 82% growth in new business profit being the main driver. Alongside this, the company's new business margin more than doubled, with a focus on profit rather than volume. This enabled price improvements, enhanced risk selection and unusually high mortgage spreads, all of which contributed to higher margins.

JRP's merger integration also progressed relatively smoothly. Around £30m of run rate synergies were achieved in 2016 from the 2018 target of £45m. This is one year ahead of schedule, while an increase in the Solvency II coverage ratio of 17 percentage points to 151% puts the business on a stronger financial footing. This could allow for greater investment in its product offering, as well as higher profitability in future years.

Growth potential

Looking ahead, JRP is forecast to record a rise in its bottom line of 51% this year, followed by growth of 13% next year. Despite this high-growth outlook, it trades on a price-to-earnings growth (PEG) ratio of just 0.7. This indicates that its shares could move significantly higher. In fact, assuming the company meets its forecasts over the next two years, its price-to-earnings (P/E) ratio will be 9.2 by 2019. Therefore, capital gains of 25% seem relatively likely over the next two years, since they would lead to a still relatively low P/E ratio of 11.4.

Sector opportunities

Of course, JRP is not the only company within the insurance sector that offers price appreciation potential. Sector peer Prudential (LSE: PRU) is forecast to grow its bottom line by 14% this year, and by a further 8% next year. This puts it on a PEG ratio of only 1.4, which indicates that its share price could move higher.

Prudential may also offer a relatively low risk profile. Its business is highly diversified in terms of the products it provides and the geographies it covers. This may enable it to overcome any slowdown in one region of the world, or in any specific product category.

Furthermore, its strong position within emerging economies across Asia means that while its earnings growth may lag that of JRP in the next two years, in the long run Prudential could deliver higher profit growth than its sector peer.

Both stocks could be worth buying, but Prudential may have the more favourable risk/reward ratio.

Dirt-cheap shares?

Of course, there are other companies that could be worth buying at the present time. With that in mind, the analysts at The Motley Fool have written a free and without obligation guide called Five Shares You Can Retire On.

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Peter Stephens owns shares of Prudential. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.