The Bank of Georgia (LSE:BGEO) is one of the FTSE 250‘s lesser-known winners. The Tbilisi-based bank has delivered huge returns in recent years. It’s up 337% over three years, 294% over two years, and 74.2% over one.
While I’m bullish on Bank of Georgia in the long run, I fear there could be some challenges on the horizon. Let’s take a closer look.
Let your winners run
I bought Bank of Georgia shares in April 2022 for around £9.50 per share. Today, the stock’s worth around £48.50. The issue is that I no longer own shares in the bank. I sold when I was up 200%, but it could have been much more.
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Letting your winners run is an investing strategy that encourages us to hold onto profitable positions to maximise gains. This goes against the urge to sell early and lock in smaller profits. But sometimes it can be challenging not to cash in.
The lesson I’ve learned is that I should continue to hold my positions if the metrics remain attractive. After all, if earnings are improving in line with the share price, there’s no reason to sell.
Banks are cyclical
Banks are cyclical stocks and that means they tend to reflect the health of the economy. Georgia is among Europe’s fastest growing economies, so it isn’t surprising to see the share price surging over recent years.
However, it’s also the case that geopolitical and political events can have an impact on the share price. For example, when Russia invaded Ukraine, Bank of Georgia shares plummeted on concerns the conflict could spill over. The dip was short-lived.
A fresh concern
Georgian politics is quite polarised, and it’s an election year. Parliamentary elections are scheduled to be held in Georgia on 26 October.
Georgia’s ruling party, Georgian Dream, has prioritised growing the economy since taking power over a decade ago. But economic growth has come at a cost.
Georgian Dream has been accused of being too soft on Russia, which invaded Georgia — or was provoked into an invasion depending on your position — in 2008 and still occupies territory.
This softness on Russia has become manifest when you take a walk around Tbilisi. The city’s full of Russians, many of whom wanted to avoid being drafted and Western sanctions on their businesses.
Unsurprisingly, they’re not overly welcome. And this has only served to accelerate the polarisation of Georgian politics.
So with elections approaching, it’s likely we’ll see more unrest. And this political instability could impact investor confidence in Georgian stocks, particularly banks, which are sensitive to economic fluctuations.
The bottom line
This FTSE 250 bank may look attractive at 5.3 times earnings, and 4.1 times forward earnings. However, I’m keeping my powder dry as I feel there could be better entry points later in the year. I feel the stock may have peaked for now.
