Growth stocks can often provide an investor with strong long-term capital appreciation. However, some feel that the tech and AI sectors are the only viable areas right now to find good growth shares. This simply isn’t true, and I’ve spotted one from the financial services space that has strong forecasts from City analysts.

A niche player

I’m referring to Paragon Banking Group (LSE:PAG). The stock is up 48% over the past five years, providing steady growth over a long period. Over the past year, it’s down 7%.

Unlike the high street banks, Paragon focuses on specialist lending, providing buy-to-let mortgages and commercial loans to professional landlords and small businesses. It also has a growing savings franchise, taking retail deposits that fund its lending book. All of this means it faces less direct competition from the UK’s largest banks and can often earn higher margins by serving customers requiring more specialist services.

Despite these attractive characteristics, the share price has slipped over the past year. I believe much of that weakness reflects broader concerns around the UK economy rather than company-specific issues. Investors remain wary that higher interest rates could eventually lead to rising mortgage and loan rates. There are also concerns that tighter regulation could weigh on future loan demand. These remain risks going forward, but that hasn’t stopped experts from research teams believing the long-term growth story isn’t over.

Forecasting further growth

Based on a current share price of 862p, the consensus view from analysts is that the growth stock could rise to 1,045p in the coming year. Therefore, to keep the numbers easy, £862 invested today could potentially grow in value to £1,045. Among those analysts, the lowest ranking is 950p. The highest is from the team at Investec, who believe it could hit 1,165p. At the top end, if this forecast proves correct, it would represent a 35.1% move higher.

Of course, there’s nothing to say the forecasts will definitely come true. The analysts are human and can make mistakes, so the Paragon share price might not follow predictions. But it’s a good barometer for market sentiment. From here, I can factor in my own viewpoint.

A decent outlook

A big factor why I think the company can do well is the increased push into digital products. The latest half-year results published in June noted that the digital proposition “exceeded our expectations since its launch in April last year with balances passing £1bn at the half year. We have further new product innovations planned across the group along with broader strategic initiatives to digitise and diversify into areas we can scale.”

This ultimately will help to keep a lid on costs and make the company more efficient, eventually filtering down to higher profitability.

Then there’s the economic outlook. Even though we could see interest rates increasing in the UK this year, I don’t think they will rise enough to cause business headaches. After all, any worry about triggering a recession or reducing confidence in the housing market simply isn’t what the government or the central bank want.

So when I put everything together, I agree with the view that this growth stock could outperform in the coming year. I already have enough exposure to the sector, but those who don’t may want to consider it.

Should you invest £5,000 in Paragon Banking Group Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Paragon Banking Group Plc made the list?

Jon Smith does not hold any positions in the companies mentioned