Provident Financial plc is a growth bargain I'd buy and hold for 25 years

This year has been hugely challenging for Provident Financial(LSE: PFG). The specialist lender has seen its share price slump by 70% since the start of 2017, with investor sentiment declining after a major profit warning. While further share price falls cannot be ruled out, the company could post a recovery over the medium term. As such, now could be the right time to buy it alongside another stock which has also endured a difficult 2017.

Segment problems

The main cause of Provident Financial's difficult year has been the performance of one of its four divisions. The Home Credit division has experienced severe problems which culminated in the group's CEO resigning from his position. The business sought to improve its overall performance through changing the employment status of agents within its Home Credit division, but this had the effect of reducing sales and collections.

Now, the company has changed its management structure and according to its most recent update, there has been an improvement in the division's performance. This could indicate the start of a turnaround. While it is clearly early days and there is no guarantee of further improved performance, the trend appears to be a positive one. This could act as a positive catalyst on the company's share price performance in future months.

Value appeal

After falling by such a large amount in a short space of time, the company now trades on a price-to-earnings (P/E) ratio of 15.5. This suggests that there could be upside potential on offer, since the stock is forecast to post a rise in earnings of 64% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of 0.2, which suggests that it may offer a wide margin of safety. This could limit its downside and mean that it offers high growth potential in the long run.

More difficulties in 2017

Of course, Provident Financial is not the only stock which has posted disappointing returns in 2017. Technology services and media solutions company iEnergizer(LSE: IBPO) has dropped by 48% since the start of the year, with investors responding negatively to its first-half update on Monday. That's despite the company making progress in its financial performance, with revenue increasing by 6% and operating profit up 9.1%.

Looking ahead, the company is confident about its future. It seems to have a sound strategy, with a focus on recurring revenue streams from business critical processes, new product launches and improving customer loyalty. It has a strong balance sheet, with cash flow improving and it being capable of reinvesting for future growth as well as engaging in M&A activity. Therefore, with a PEG ratio of just 0.9, it appears to be worth buying for the long haul.

Of course, both stocks could remain highly volatile. Their share prices may fall in the near term. However, with upbeat outlooks, they could offer high growth prospects in the long run.

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Peter Stephens has no position in any 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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