Why the 3i Infrastructure share price (LON:3IN) remains good value after rising by nearly a third

Mid cap infrastructure fund operator 3i Infrastructure (LON:3IN)has been a standout performer in recent times and its shares boast a one-year relative strength of 32.5%. Despite the strong return, there are still measures that suggest 3i Infrastructure shares are cheap.

One of the masters of value (and factor) investing is Jim O'Shaughnessy, the founder of O’Shaughnessy Asset Management (OSAM). In the 4th edition of his groundbreaking investment research tome What Works on Wall St, O’Shaughnessy showed that composite value factors based on a mix of metrics dramatically beat the market over a multi-decade period.

It was from this robust insight that Stockopedia’s Value Rank was born, its synergy coming from the following simple valuation ratios:

• Price to Book Value
• Price to Earnings
• Price to Free Cash Flow
• Dividend Yield %
• Price to Sales
• Earnings Yield %

How does 3i Infrastructure stack up?

The Value Rank: how does 3i Infrastructure stack up?

We can see by using 3i Infrastructure’s StockReport that the group has a:

• Rolling price to book value of 1.27,
• Rolling price to earnings ratio of 13.8
• Trailing twelve-month price to free cash flow of 3.28
• Rolling dividend yield of 3.01%
• Trailing twelve-month price to sales ratio of 3.55

When we add all of these together, we find that 3i Infrastructure has a Value Rank of 80. Investing in high-value stocks requires finesse and a sturdy constitution but, when cheap stocks come good, the payoff can be large and sudden.

3i Infrastructure’s Value Rank of 80 puts it in the cheapest quartile of the stock market. That is certainly a promising jumping off point for our analysis but it is not the whole story.

A smarter way to invest in value stocks is to find the best quality value stocks or value stocks whose share prices are turning around - history shows that you can do much better than a passive investor by combining factors, so it makes sense to consider 3i Infrastructure’s Value Rank alongside its Momentum and Quality Ranks. You can see these Ranks on the group's StockReport page.

What does this mean for potential investors?

Some of the best quality stocks in the market have defensible models that can deliver high levels of shareholder returns over the long term. But there are no guarantees and it's important to do your own research. Indeed, we've identified some areas of concern with 3i Infrastructure that you can find out about here.