My favorite FTSE 100 stock just jumped 14% in today’s results – time to think about buying more?

When I buy a FTSE 100 stock, I intend to hold it for a long time. That was my intention when I added independent expertise and infrastructure 3i Group (LSE: III) in my Self-Invested Personal Pension (SIPP) in 2023.

It was a stock I wanted to own for years, but I had one concern. Stocks were already doing so well that I feared I was late to the party.

I traveled a lot anyway. 3i has an excellent history dating back to 1945, buying businesses, developing them and selling them for a profit. My worries were quickly put to rest as the shares continued to rise, quickly doubling in value and becoming the best performing FTSE 100 stock in my SIPP. But then another concern set in.

3i The group’s shares are flying today

For several years, 3i’s recovery has been largely driven by one catch: The action of the European non-food discount chain. It was an amazing investment. Since acquiring a majority stake in 2011, 3i has overseen Action’s expansion from 250 stores in three countries to more than 3,000 in 14 countries. It is still growing rapidly, moving forward in Switzerland and Romania.

The move has been successful during a cost-of-living crisis, as shoppers hunt for value among a ‘treasure trove’ of 6,000 discounted products. However, it is now completely overshadowed by the rest of the portfolio, which has never matched its success.

Now I wonder about 3i’s exit strategy. Even if chief executive Simon Borrows had it. Also, the 3i looked overpriced, trading at a 48% premium to net asset value.

Those fears peaked on 13 November, when a strong set of half-year results included a slight drop in Action’s French sales. Shares fell 30% in one day. Apparently, I was not alone in my anxiety.

Then I noticed that Borrows had taken advantage of the downturn to invest £1m of his own money in stocks. That’s a big vote of confidence. I followed him and entered. Sadly, with very little money.

I’m glad I bought the dip

Today, that decision seems justified. The price of the 3i fell 14% this morning after Action reported like-for-like sales growth of 6.1% in the first four weeks of January, despite ongoing challenges in France. It is still down 17% over one year.

Borrows praised Action’s “impressive growth trajectory”noting that it opened a record number of new stores and delivered double-digit annual sales and earnings growth, with new locations Switzerland and Romania performing better than expected.

3i also has a strong balance sheet, with £995m of net cash and 1% gearing. As for the exit strategy, forget it. The board raised its rating on Action to 65.3%, up 2.9%.

I’m glad I bought the dip. I paid £32.17 at the beginning of December. Today, shares are trading at £35.94, almost 12% higher. But mostly, I’m happy because I’m sticking to my broad strategy: buy long and consider buying more on the dip. I won’t be buying much after today’s surgery though. Stocks may retreat as profit-takers emerge.

Action looks like it has a lot of growth potential, but anyone considering the 3i needs to understand what they’re buying. Action, not 3i. That is a problem of late date. For now, I’m enjoying the ride.