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Why the IPH Ltd share price soared this week

Credit: Patrick McKnight

Shares in intellectual property and trademark servicing business IPH Ltd (ASX: IPH) have climbed around 10% this week and more than 125% over the past year as investors warm to its growth potential.

In the last year 85% of the group’s revenues came from its patent design business, which effectively helps and advises clients in filing, managing, and protecting intellectual property applications and rights.

The business is growing strongly, especially in Asia which is a growth region and this week IPH announced its intention to raise $60 million to help fund more acquisitions and strengthen the balance sheet by reducing debt.

Acquisitions are possible in entirely new geographic markets or adjacent businesses with the usual caveats over a disciplined strategy that only produces earnings per share accretive takeovers.

Thanks to a falling dollar and the addition of new businesses the group expects to report EBITDA of between $32 million to $34 million for the first half of FY16.

However, at current prices the company is not cheap and trades on high multiples of forecast and trailing earnings. The company does have an impressive and sticky client list, which suggests the future is bright, but investors today would pay a high price to gain a slice of what looks a moderately attractive business.

Others in the legal services space have been travelling in the opposite direction recently, with Slater & Gordon Limited (ASX: SGH) down 76% in six months and Shine Corporate Ltd (ASX: SHJ) down 27% over the same period.

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Motley Fool contributor Tom Richardson owns shares of Slater & Gordon Limited. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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