Up 70% in a year! Is it time I finally bought this red-hot UK stock?

Harvey Jones is always on the hunt for a dirt cheap UK stock with recovery potential. But should he buy one after it’s taken off like a rocket?

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If I had a pound for every time I kicked myself for failing to buy shares in Intermediate Capital Group (LSE: ICG), it wouldn’t be anywhere near enough to buy it today. The private equity investment firm has smashed the FTSE 100 since I first highlighted its potential on 13 December 2022.

At the time it caught my eye, the share price had just fallen 47% in a year, after first-half group profits crashed from £264.7m to just £35.6m. Which is exactly the type of performance that gets my investment juices flowing.

I love buying good companies when they’re out of favour. Especially when they’re cheap, as the global alternative asset manager was at the time, trading at just 6.4 times earnings. Better still, it was offering what I called “an unmissable 6.45% yield”. I concluded that “when I have some cash to spare after Christmas, I will buy it”.

FTSE 100 thriller

It must have been an expensive Christmas, because I didn’t. Big mistake. Intermediate Capital Group shares traded around 1,175p at the time. Today, I’d have to pay 2,146p. They’ve climbed almost 83% since then, with dividends on top. The company ousted Hargreaves Lansdown from the FTSE 100 in December.

Over the last 12 months, the Intermediate Capital Group share price is up 70.65%. The FTSE 100 has put on a solid showing over the same period, but it’s up just 7.6% (there’s a reason I no longer buy trackers).

So much for past regrets. All that matters now is whether I would buy Intermediate Capital Group shares today.

The stock is still bombing along, playing a full part in the FTSE 100 rally. It’s up 4.81% in the last month. The problem is it’s no longer cheap, trading at 16.1 times forecast earnings for 2024.

Inevitably, the dividend isn’t what it was either, with a forecast yield of 3.71% for 2024, albeit rising to 4.12% in 2025. That’s good, roughly in line with the FTSE 100 average, but it’s no longer what I’d call unmissable.

Still kicking myself

Intermediate Capital Group had $86.3bn total assets under management at 31 December 2023, up from $71.3bn when I first spotted it. Of these, $68.4bn were fee-earning, up 10% on the year before.

The company’s profits can be volatile. An operating profit of £172.30m in 2020 rocketed to £566.1m in 2021 and £618.5m in 2022, then retreated to £315.6m in 2023. It’s the nature of the business.

This is the type of firm that does well when the economy is booming, but can struggle when times are tough. Much therefore depends on where the economy goes next. The outlook is bumpy, although you wouldn’t know it by looking at the flying FTSE 100. 

Intermediate Capital Group is still raising plenty of funds though, securing $3.6bn in Q3. Falling interest rates should give it another lift, when they finally feed through. Yet I’m reluctant to dive in after such a strong run.

I missed my moment, 18 months ago. Rather than kick myself for overpaying, I’m going to look elsewhere for the next bargain recovery play.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown Plc. 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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