Shares in intellectual property specialist IP Group (LSE: IPO) have risen by over 2% today after the company reported an upbeat set of half year results. It announced that the value of its portfolio, through which it helps universities to commercialise their intellectual property, had risen from £320m a year ago to £478m at the end of the first half of its current financial year. Clearly, this is a hugely impressive rate of growth and, with IP Group describing its pipeline as ‘healthy’, its long term future appears to be bright.
However, as an investment, it still seems to be rather overvalued. For example, while earnings for the current year are forecast to rise from 2p per share last year to 8.4p per share this year, it still leaves IP Group trading on a price to earnings (P/E) ratio of 25.5. That’s expensive and, with IP Group’s share price having risen by just 4% since the turn of the year, it seems likely that a degree of pressure may be exerted upon it in the short run as a result of its rather rich valuation.
Therefore, 3i (LSE: III), which invests in a range of private equity and infrastructure opportunities, appears to be a better buy. Certainly, its shares have soared by 20% since the turn of the year, but they still trade on a P/E ratio of just 9.1. And, with 3i paying out just 24% of profit as a dividend, there is tremendous scope for it to increase shareholder payouts at a brisk pace moving forward so as to improve 3i’s current yield of 2.6%.
Also having considerable future potential is document storage company Restore (LSE: RST). It today announced the acquisition of The Data Imaging and Archiving Company for £1.45m, which is slightly higher than the company’s annual turnover of £1.3m. And, while the acquisition only made a small profit last year, Restore is expected to grow its earnings by 24% in the current year, and by a further 14% next year. This means that Restore’s bottom line could be as much as 41% higher in 2016 than it was in 2014 and, with it trading on a price to earnings growth (PEG) ratio of just 1, it appears to offer considerable scope for capital gains over the medium to long term.
Meanwhile, online video search company Blinkx (LSE: BLNX) continues to offer excellent value for money, but a highly uncertain future. For example, it trades at well below net asset value, has a very strong balance sheet and impressive cash flow, but remains in a transitional period where it is expected to maintain a red bottom line in the current year and next year. And, while its strategy of focusing on mobile customers and rebranding its offering, as well as making multiple acquisitions, could pay off, the likes of Restore and 3i appear to offer greater potential rewards and much lower risk for long term investors.
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Peter Stephens owns shares of 3i Group and Restore plc. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.