I’m always on the hunt for a cut-price UK share with massive growth potential, and I think I’ve just found one nestling in my own portfolio.
The company is private equity specialist 3i Group (LSE: III), which I added to my SIPP in early 2023. It promptly went gangbusters. Within a couple of years I’d doubled my money. Since I’d gone in pretty big, it became by far my biggest holding. I was even thinking of taking some profit. In retrospect, I wish I had.
What went wrong with 3i Group?
3i traces its roots back to 1945, when it was established to provide finance to British businesses rebuilding after the war. It subsequently evolved into a major private equity investor, buying stakes in companies and helping them grow.
Everything changed when it invested in Dutch discount retailer Action in 2011, when it had just 250 stores. Today, it operates more than 3,300 stores across Europe, and 3i Group owns 65.4% of the business.
This helped propel the share price to extraordinary heights, but also created a huge concentration risk. Action accounted for 75% of 3i’s investment portfolio by value as of March 2026.
All it needed was a slight slowdown for investors to lose their nerve. Full-year results (14 May) showed Action’s like-for-like sales growth had slowed to 2.4%, against 6.8% a year earlier. France, which accounts for roughly a third of sales, was flat, while Germany struggled too. The 3i share price plunged 19% on the day, despite an overall excellent year.
The shares are now down 40% over 12 months, the FTSE 100’s worst performer over that period, although still up 88% over five years.
I took advantage of the weakness to increase my stake, adding to my risk. I was encouraged that chief executive Simon Borrows had bought almost £9m of additional shares.
Is this FTSE 100 stock recovering?
The big question is how reliably Action can keep growing. Management plans to enter the US, opening its first stores in late 2027 or early 2028, with ambitions for around 100 outlets by 2030. This looks like a binary play to me. A repeat of its European success would send the shares to the stars, but the US is famously hard to crack. Failure could hammer the 3i share price.
Today, the shares trade at a discount of 17.7% to their underlying asset value, notably higher than the 12-month average of around 6.7%. That’s tempting.
On 6 November, Barclays reiterated its Buy rating and set a 12-month price target of 3,985p. That was below its previous 4,205p target but would still mark stunning growth of 57% from today’s 2,532p. Broker, RBC, remains bearish with a 2,100p target. I did say this looked binary.
The trailing dividend yield is 3.35%, which isn’t bad. But it’s the growth that counts here. I’m hanging on, hoping for more recovery, but I’m still worried about Action.
I think 3i Group is worth considering for higher-risk investors but this beaten-down FTSE 100 growth stock could be a less nerve-racking alternative…
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Harvey Jones owns shares in 3i Group.
This story originally appeared on Motley Fool
