This FTSE 100 stock has doubled investors’ money in 2.5 years. Here’s why I think it can do it again

If you have some money to invest, I think this FTSE 100 (INDEXFTSE: UKX) is one of the best buys on the market.

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Today, I’m looking at two FTSE 100 stocks that have doubled investors’ money over the past five years. While past performance is never a guide to future returns, it does give us some insight into a business’s outlook, which is why I’ve decided to seek out these equities as a starting point for further research.

First up we have private equity group 3i (LSE: III). Even though this stock has fallen by nearly 20% from its all-time high printed earlier in 2018, the shares have more than doubled since February 2016, excluding dividend distributions to investors.

Online property portal Rightmove (LSE: RMV) has produced a similar return for its shareholders. Between October 2014 and today, this stock has returned 120%, and I believe there’s plenty more to come from this exceptional business. 

Exceptional business

As I’ve written before, one of Rightmove’s most attractive qualities is profitability. The business’s five-year average operating profit is 72%, a level of profitability that has given management plenty of cash to reinvest back into the business for growth, or return to shareholders. 

As my colleague Paul Summers recently noted, Rightmove’s online-only model is the reason behind these astonishing profit margins. This model gives it flexibility traditional estate agents don’t have, which is helping the company maintain its current growth rate, despite the uncertain housing market environment. A few months ago, the group announced a 10% increase in revenue and an 11% rise in operating profit for the first half of the year.

City analysts have pencilled in earnings per share (EPS) growth of 15% for the full year, leaving the stock trading at 25 times forward earnings. That’s a punchy multiple, but it’s one that I believe is worth paying for Rightmove’s fat profit margins, cash-rich balance sheet, and market-leading position. 

If the company can continue to churn out double-digit earnings growth for the foreseeable future, it won’t be long before the stock doubles again, in my view. 

Asset values 

3i is a very different business to Rightmove. Unlike the property website, 3i doesn’t generate revenues itself. The company buys and sells businesses and then returns cash to investors, or reinvest the money received, to grow net asset value per share (NAV). Considering this, it’s better to value the stock on NAV and NAV growth rather than earnings. 

Today, the company revealed its results for the first six months of its financial year to the end of September. It reported a 10% increase in shareholders’ funds and NAV per share of 776p (also up 10% from the end of March) — yet another robust performance from a business where shareholders have come to expect steady NAV growth. 

The great thing about 3i’s business model is that the company is not restricted to just one sector, it can invest in businesses across different industries, giving it the flexibility to thrive in all market environments. With this being the case, and considering its historical record of creating value for investors, I think the firm could double its NAV once again in the near term. While investors wait for the firm to create value from its portfolio, there’s also a 3.8% dividend yield on offer.

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.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Rightmove. 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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