Buy this ASX 200 share with 'predictable, recurring revenues' and no inventory risk: expert

Take a look if you're seeking a dependable opportunity in the current economic climate.

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Key points

  • ASX 200 shares continue to consolidate as we approach the final period of 2022
  • Strong business models and healthy cash flows are company essentials in the current economic landscape
  • IPH looks to be one candidate, according to an expert

Australian markets were rangebound again today with the benchmark S&P/ASX 200 Index (ASX: XJO) creeping just 12 points higher to close at 6,810 — up 0.18% on the day.

The downside has been heavy this year for ASX 200 investors, and active stock pickers have moved front and centre once again.

Company fundamentals and company-specific features have become the new driving factors in equity markets, more so than the abundant liquidity of the past two years.

What this means for ASX 200 shares moving ahead remains to be seen. Nonetheless, investor preferences have changed.

IPH looking strong, expert says

As the wave of macro-headwinds continues for ASX companies, fundamentals are once again the most important piece of the puzzle.

With that, strong business models, producing strong, known cash flows, are standing out.

One ASX 200 share worth looking at is IPH Ltd (ASX: IPH), according to one expert. Celeste Funds Management's Sheryl Chand identified the intellectual property services company as an opportunity in an article on Livewire today.

Chand noted IPH's acquisition of Canadian specialist IP law firm Smart & Biggar earlier this year for $390 million, labelling it a 'best in class' acquisition of Canada's IP assets.

"Not only does management expect EPS accretion of 10% in the first full year of ownership, but also the acquisition is strategically transformative for IPH," she said.

However, it's the company's simple-to-understand business model and ability to make projections that are the most appealing in IPH's case, Chand says.

IPH has a simple operating model and straight-forward financial reports. For example, their revenue recognition is easy to understand and does not require significant judgement or complex calculations.

We also like that they have predictable, recurring revenues, and a capital-light business model which is free from inventory-risk.

They also use reputable auditors and maintain a clean track record of reporting with no indicators of material misstatements.

It is for these reasons the fund is bullish on IPH and its operations domestically and abroad.

In the meantime, the share is up more than 10% this year to date, having bounced off a low in June.

It now trades back in line with its pre-pandemic highs, as seen on the chart below.

TradingView Chart

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended IPH Ltd. The Motley Fool Australia has recommended IPH Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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