Down 20% in a month, is this the biggest bargain in the FTSE 250?

Jon Smith explains why a FTSE 250 stock has been dropping in value recently, but why he believes it could rally in the future.

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Summer might be here and England might still be in the European football championships, but not everything is looking positive. Over the past month, shares in IP Group (LSE:IPO) dropped by 20%. The FTSE 250 growth stock isn’t the most well-known company. But after doing some research, here’s why it could be a great bargain for me to consider snapping up now.

Details of the company

IP Group describes itself as an active investor in university and other research-based companies. It boasts of a proven track record in backing and nurturing science and technology based businesses.

When I look through the largest holdings, I don’t notice any that I know at first glance. However, this isn’t something that worries me. After all, these are meant to be early stage young firms, not household brands.

For example, the largest holding currently is Accelercomm. It provides decoding solutions for firms involved in 5G communications. Another large stake is in Artios. This is a life sciences company that’s focused on developing new therapies for dealing with cancer cells.

I like the broad range of sectors that IP Group invests in. It’s clearly a stock for the future, as it’s at the forefront of cutting edge tech and will benefit from where that goes in coming years.

The recent wobble

The 20% drop over the past month isn’t good. In the past year, the share price is down by 23%. I think the main driver in the recent past has been weak sentiment about the values of the companies in the portfolio.

In theory, the IP Group share price should reflect to some extent the value of the investments that it holds. The results for 2023 showed that the net asset value was £1.19bn, down from £1.38bn in the previous year. The CEO commented that “the market environment for early-stage investing remained challenging in 2023.”

Given that most of the companies that IP Group invests in are private, it’s not quick or easy to buy or sell their shares. This can worry some potential investors, as if a company starts to do badly, IP Group might not be able to sell at a good price.

Look to the long term

The drop last month pushed the stock to 52-week lows. From my perspective, I think the concern is overdone. Valuations on young firms are always going to be volatile. Yet IP Group just needs to nurture one of these in the portfolio on the same track as Nvidia in order to see the share price explode higher.

I think the future is bright based on the fact that IP Group is investing in exactly that — the future. It’s not targeting traditional sectors, but rather rapid-growth areas with high demand. With my long-term investing hat on, I believe the value of the portfolio (and therefore the share price) should be higher than where it is now when I look out over the next couple of years. On that basis, I do think it’s one of the biggest bargains in the FTSE 250 right now and am seriously thinking about adding it to my ISA.

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.

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Nvidia. 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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