1 Growth Stock Down 9 Percent to Buy Right Now

Buying a growth stock just because it’s discounted might not be the wisest investment decision. You should also look into its fundamentals and recovery potential.

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It’s easy to choose discounted stocks when the market is bearish during a market crash or a sector-wide crash. That’s because the “force” and factors behind the discount are pretty apparent. Investors may wait before buying their favourite stocks. Still, the wait is more about getting the timing right, ideally just before the recovery begins, than it’s about assessing the stock itself.

However, when a stock, especially a growth stock, starts going down when the market is bullish, it’s natural to be wary about buying it and taking advantage of the discount. That’s the case with Clairvest Group (TSX:CVG).

The stock

Clairvest Group is currently trading for $70 per share and has a market value of about $1 billion. That represents a 9% discount from the beginning of this year and a 15% discount in the last 12 months.

The size of the slump itself is not a problem, as the stock has fallen harder than that multiple times in the previous five years, but in most of those instances, the drop was far sharper and did not spread out over a year.

Even with this discount in place, the stock has returned about 45% in the last five years. At this pace, it may help you double your capital in the next 12 years or so. This is a relatively slower representation of its long-term growth potential because if we look further back, the stock has risen by about 190% in the last 10 years.

The company

Even though the reasons behind this relatively slow and modest slump aren’t clear, the company looks healthy. It has a history of raising capital at a rapid pace, which is a strong reflection of its good reputation and standing within the industry, considering the relatively modest performance of other equity firms. It has almost no debt and about $144 million in cash and investments.

The company has made multiple acquisitions and exits in the past two or three years. Some of these acquisitions were by the company itself, and the others were in partnership. Considering Clairvest’s track record, these acquisitions are expected to yield decent returns for its shareholders and may give a strong boost to the company’s financials and standing in the coming years.

Foolish takeaway

While past performance is not a rock-solid evaluation metric for future projections, it wouldn’t be a stretch to say that Clairvest’s long-term prospects are healthy enough, and it may turn things around soon, especially if the next earnings report is more attractive than the last one.

So, buying it now at its modest discount may be a smart thing to do. Once it enters the bull market phase, you may lose the recovery part of the growth.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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