Is this the FTSE 100's best hidden gem?

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3i Group(LSE: III) flies under the radar of most investors despite the fact that it is one of the FTSE 100's best-performing businesses. Indeed, over the past five years, shares in the company have gained 230% excluding dividends. And according to my figures, including dividends the shares have returned 260%. 

However, 3i isn't your standard FTSE 100 business. The company is a private equity business and infrastructure investor. Both of these activities are usually confined to hedge funds and other investment vehicles, not publicly traded companies. 

Lucrative business 

3i's largest private investment is retailer Action, which is a great example of how 3i generates returns. 

As Action grows, the group is throwing off cash. The recent store expansion programme has allowed the firm to secure a EUR1.7bn refinancing. From this refinancing alone, 3i received £187m of proceeds.

During the group's fiscal third quarter it generated total cash proceeds of £263m, taking the total received in the nine months to 31 December 2016 to £917m. A large portion of this cash was reinvested. In December 2016, management made a further investment of £62m, in Q Holding to support its transformative acquisition of Degania Silicone Ltd to create one of the largest medical silicone and systems manufacturers globally. Then in January, 3i committed £122m to Ponroy Santé, a manufacturer of natural healthcare and cosmetics products. 

By investing, waiting, selling and then reinvesting private equity proceeds, 3i has been able to produce impressive investment returns over the years through compounding. And as well the group's lucrative private equity business, 3i owns an infrastructure fund and manages the investment of funds in infrastructure. 

By managing and owning an infrastructure fund, 3i can benefit from both management fees and capital gains. For example, for the six months to 30 September, 3i reported a gross infrastructure return of £90m including £28m of fee income. 

Time to buy? 

3i is generating impressive cash returns for investors but are the shares worth buying? 

Well, at current prices, its shares trade at a significant premium to net asset value of 558p. That being said, on an earnings basis the shares look cheap trading at a forward P/E of 5.6 for the year ending 31 March 2017 but these results will benefit from a one-off gain and next year earnings per share will fall back by 44% and remain constant for two years. 

Based on these normalised figures, the shares are trading at a P/E of 9.9 and support a dividend yield of 3.3%. 

Another thing to note is that private equity tends to be a highly cyclical business, and right now with valuations elevated, we could be near the top of the cycle, which is something potential investors need to consider. 3i's business may be booming now, but this is undoubtedly a reflection of the market environment. 

Still, trying to time the market is impossible and there's no telling for how much longer profits will continue to surge. With this being the case, and considering the company's impressive past returns, low earnings multiple and dividend, 3i looks to be one of the FTSE 100's best growth stocks. 

Looking for more growth stocks? 

If it's growth stocks you're after, but you don't like the look of 3i, there's one other stock our analysts here at the Motley Fool believe stands head and shoulders above the rest of the market.

Unlike some, this company is established and already has a record of impressive growth behind it. 

In fact, we believe this hidden gem might just be the perfect small-cap growth stock

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.