Is it a growth stock, is it a value share? FTSE 250-listed trading platform IG Group (LSE: IGG) is arguably a bit of both. The IG share price has been red-hot lately but its price-to-earnings ratio is a lowly 9.86 and the yield remains high.
Whatever the definition, IG has been flying after several years in the doldrums. Should I finally hop on board the growth/value train?
The IG Group share price has soared 39.14% over the last 12 months as it makes up lost ground. So what’s driving IG?
Every stock goes through good times and bad times, yet for IG, the bad times are typically the best.
Can the IG share price carry on growing at speed?
Unlike mass market investment platforms, IG thrives on volatility. That’s because it specialises in more complex instruments such as spread betting, exchange-traded derivatives, and contracts for difference (CFD). Its private and institutional clients can make money regardless of whether markets are falling or rising, just as long as they’re moving.
Despite this apparently risky market positioning, it has a surprisingly solid track record, having been building its business for around 50 years now. It has a solid track record of dividend growth too, as this chart shows.
Chart by TradingView
It held shareholder payouts during the pandemic and today offers a juicy trailing yield is 5.16%. Payouts are nicely covered twice by earnings.
IG had a rough start to 2024, reporting a 21% drop in half-yearly adjusted pre-tax profit to £205.7m, due to lower market volatility across a range of asset classes. It was even forced to lay off staff to manage costs.
On 25 July, with trading activity still down, the board reported a 7% drop in full-year pre-tax profit to £456.3m.
I’m keen to buy this FTSE 250 stock
Chief executive Breon Corcoran says “IG has a sound position in large, growing markets, underpinned by an established brand and a loyal, high-value client base”. However, but it faces a constant battle to hang onto that client base in a competitive market.
Also, spread betting is risky and customers who keep losing money don’t come back. Or they shouldn’t. I backed off very quickly, as the losses racked up.
Happily for IG investors, market volatility has picked up, boosting Q1 revenues by 15% to £278.9m. However, while revenue per client grew, the total number of active clients actually slipped 1% to 263,000.
The eight analysts offering one-year share price forecasts for IG have set a median target of 1,162p. If they’re right, that’s up almost 30% from today’s 895p. Throw in that yield and IG’s £150m share buyback programme, and there’s a lot to like here.
The last week has been rough on UK shares, and IG is down 4.04%. That gives me a chance to buy it at a discount, and that’s exactly what I’ll do in November.
