I’m looking to add some FTSE 250 growth stocks to my portfolio of blue-chips and IP Group (LSE: IPO) has caught my eye.
IP Group âinvests in breakthrough science and innovation companiesâ, often university-based research-led companies, which it hopes to help nurture into growth and exit at a profit.
Two examples are portfolio holding Accelercomm, which provides decoding for firms involved in 5G communications, and life sciences company Artios, which develops new therapies for dealing with cancer cells.
Can IP Group keep growing at speed?
Investing in cutting-edge early stage companies is always risky, as impressive intellectual property doesn’t always have commercial teeth. Unsurprisingly, the IP Group share price has been volatile. Its shares are on fire right now. They jumped 21.49% over the last month, at a time when the FTSE 250 fell 0.07%. However, they’re down 21.43% over 12 months. Someone who invested three years ago would be sitting on a 70% loss.
There are high potential rewards here, but also above average risks.
Annual results for the year to 31 December 2023 were a mixed bag, as total net asset value shrank 14.4% to £1.19bn. CEO Greg Smith observed that the market for early-stage investing âremained challengingâ.
Yet he said IP Group finished the year âin a strong financial position with £227m gross cashâ, after some successful fund aising.
It still felt able to launch a £20m share buyback programme, which lifted the share price. Then it retreated as wider sentiment dipped.
So there are cyclical risks here. That’s on top of other risks, such as the obstacle course of passing clinical trials, and the challenge of finding a seller and making a profitable exit.
IP has done well on this front this year, with the sale of Garrison Technology to US-based cybersecurity firm Everfox, while Intelligent Ultrasound Groupâs sale of its Clinical AI business to GE HealthCare for £40.5m.
Generating cash for shareholders
First-half exits have brought in more than £43m, beating 2023âs full-year total, and the board celebrated by announcing another £10m buyback on 8 August. That triggered the recent share price spike.
The board is committed to returning more cash whenever the share price discount to net asset value exceeds 20%. Since 2021, it has returned more than £75m to shareholders through dividends and buybacks.
IP Group is an exciting company, operating in a sector with massive potential, as the UK tries to turn itself into a âscience superpowerâ. It’s tackling some the worldâs biggest challenges, including the energy transition and the digital transformation. Leading co-investors including Bosch Ventures, BP Ventures and Clean Energy Ventures.
So should I buy it? I think this is an exciting opportunity. However, I’m wary of buying a smaller stock on the back of a sudden share price spike. Especially given that this one was triggered by some successful disposals, which tend to be lumpy. I’ll wait a few weeks to see if the share price settles, then I’ll consider buying.
The post After crashing 70% this red-hot FTSE 250 stock is up 20% in a month! Time to buy? appeared first on The Motley Fool UK.
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Harvey Jones has no position in any of the 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.
