3 AIM stocks with massive potential

Paul Summers picks out three AIM stocks he thinks could go on to be far bigger businesses in time. But is now the right time to be buying them?

| 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.

I’m always on the hunt for promising small-cap companies that have the potential to grow at a much faster clip than your typical FTSE blue-chip. Should everything go to plan, their share prices can eventually rocket. With this in mind, here are three AIM stocks are grabbing my attention. 

Fonix Mobile

Mobile payments and messaging firm Fonix Mobile (LSE:FNX) enables businesses from the media, charity, digital services and gaming sectors to charge users’ mobile bills. An example would when people donate to the BBC’s Children in Need campaign.

Right now, trading is good. Revenue and gross profit rose by 25% and 22% respectively over the second half of 2020. A pipeline of clients means more growth is expected in 2021.

In addition to being in a rapidly expanding area, Fonix also boasts staggeringly high returns on capital employed (ROCE). Companies that can do this consistently tend to create huge value for shareholders. No wonder star fund managers like Terry Smith and Nick Train pay so much attention to this metric. 

Naturally, investors need to be cautious. Fonix only arrived on the market last October so it’s still early days. I also question just how much of an ‘economic moat’ it really possesses. Still, the performance of the share price over the last year (+82%) does suggest investors are willing to give management the benefit of the doubt, for now.

tinyBuild

US-based video games company tinyBuild (LSE: TBLD) is another new AIM stock that could do well for investors over time. Its mission is to create long-term partnerships with developers and monetise popular titles across different forms of media. The puzzle game Hello Neighbour is one example of this.

Gaming remains a hot sector that should continue growing rapidly for the foreseeable future. Like all stocks however, there can be no guarantees tinyBuild will perform. Its shares also trade at 49 times forecast earnings. That kind of valuation will only seem reasonable to the most optimistic market participants.

A relatively small ‘free float’ (the number of shares available for investors to buy in the market) also implies the price may be volatile going forward.

On a positive note, tinyBuild’s founders still have big holdings, which should mean their interests are aligned with those of their investors.  The firm also boasts a strong balance sheet — one of the things I look for when buying small-cap shares.

Ilika

Ilika (LSE: IKA) is a final AIM stock I think has big potential. It’s focused on developing solid state batteries for applications such as the Internet of Things and electric vehicles. These have a number of benefits over traditional lithium-ion batteries, such as faster charging, longer life and non-flammability. As such, mass adoption seems to be a case of ‘when’ rather than ‘if’.

Notwithstanding this, Ilika is still loss-making. This probably makes it only suitable for risk-tolerant investors. Investors must also reflect on how well the shares have performed over the last year (+500%!) and whether a lot of hope is priced in.

Should markets shift into reverse gear as a result of ongoing concerns over inflation, blue sky stocks like Ilika could be hit harder than most. Then again, this might be the perfect time to begin building a position if buyers are content to be patient for the spoils that could lie ahead.

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.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Can the filthy cheap BP share price rocket in 2025? Here’s what the experts say

Harvey Jones took advantage of a tough year for the BP share price to add the stock to his portfolio…

Read more »

Investing Articles

I aim for a million buying just 10 or so shares!

Rather than investing in dozens of different companies, our writer is focussing on finding a few great ones to help…

Read more »

British Pennies on a Pound Note
Investing Articles

Has this 6% yielding penny share fallen too far?

After a testy few days for a penny share our writer holds, he revisits the investment case and weighs management…

Read more »

Investing Articles

These are the 3 top-yielding FTSE 250 stocks in my passive income portfolio

Mark Hartley explains why these three mid-cap stocks make good additions to his passive income portfolio, despite lacking the stability…

Read more »

Investing Articles

3 stock market pitfalls for beginners to look out for

When investing in the stock market it's easy to fall foul of these three big mistakes. Our writer considers some…

Read more »

Growth Shares

The second phase of AI’s started. I expect these UK shares to benefit

Edward Sheldon believes these UK shares could do well as artificial intelligence solutions are introduced within the corporate world.

Read more »

Investing Articles

How much will be needed to start buying shares in 2025?

Christopher Ruane explains why he thinks it need not cost the earth to start buying shares and details some considerations…

Read more »

Investing Articles

Can the Next share price defy the odds and grow another 25% next year?

Harvey Jones is in awe of the Next share price, which has shrugged off the troubles hitting retail for another…

Read more »