Could AIM Stars ASOS Plc, Telit Communications Plc And Hutchison China MediTech Limited Fund Your Retirement?

Has the City overlooked a slew of small cap winners with ASOS Plc (LON: ASC), Telit Communications Plc (LON: TCM) & Hutchison China MediTech Limited (LON: HCM)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The AIM may be widely regarded as the Wild West of investing, but growth-seekers shouldn’t dismiss these shares out of hand. Although there have certainly been massive flops, shares of companies such as fast fashion retailer ASOS (LSE: ASC), pharmaceuticals maker Hutchison China MediTech (LSE: HCM) and telecoms device specialist Telit Communications (LSE: TCM) have outperformed the FTSE 100 by 769%, 833% and 44%, respectively since their IPOs. The question becomes whether these companies can keep up this pace. If they can, investors’ retirements could be looking considerably more comfortable.

In fashion

ASOS has certainly been one of the most famous AIM shares of recent years and with good reason. The online-only fast fashion retailer has carved a significant niche for itself with young shoppers. The company has taken advantage of its strong social media presence to grow revenue by leaps and bounds, with sales up a whopping 23% in the past quarter alone.

This revenue growth hasn’t turned into bumper profits because of its meagre operating margins of 4.1%. Management’s answer to this has been to bring other brands on board to the website and social media accounts, a smart move to diversify revenue.

However, I remain doubtful the company can continue living up to the high expectations it has set itself. Shares may have halved from their 2014 peak but they still trade at an astronomical 58 times forward earnings. I don’t believe its core business of low-end fast fashion will ever offer sufficient pricing power to increase profits enough to meet this sky-high valuation.

Risks and rewards

Internet of Things (IoT) device maker Telit Communications is another former high flyer whose shares have come back down to earth recently. The IoT market, which connects devices as varied as refrigerators and cars to the internet, is expected to continue growing nearly exponentially. But investors are increasingly worried that relative minnow Telit will be squeezed out by larger competitors.

This is a very valid concern, and I believe the future for Telit will hinge on its services division. The support services it offers to small companies allows them to embed IoT devices in their products, and Telit will work with them to sift through and utilise the massive amounts of data produced. Sales in the services division grew by 30% last year, but still remain a small portion of overall revenues. If the company can continue to capitalise on this success, its shares may be quite cheap at 13 times forward earnings.

Set for the big time?

Hutchison China MediTech is attempting to take advantage of China’s prodigious output of highly-educated scientists to create the country’s own homegrown global pharma giant. The company, which is controlled by Hong Kong conglomerate CK Hutchison, has so far funded high R&D costs by creating a cross-country sales network for outside prescription drugs. This strategy has paid off so far with revenue growing by 104% last year alone as the in-house innovation division begins to add to the bottom line.

The company is aiming for 25 clinical trials by mid 2016 and could send its first drug for US approval as early as later this year. And, its agreements with major global brands such as AstraZeneca and Eli Lilly bring in significant revenue each time a drug makes it to the next stage of development. If any of these myriad drugs pay off big time, shareholders could be in for great returns.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »