This AIM stock’s price is up 500%+! Would I buy it?

This AIM stock has made quite the comeback since the slump last year. But can it continue to rise?

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The stock in question is the recruitment services provider Gattaca(LSE: GATC). The AIM-listed stock caught my attention today as a big gainer, up over 9% from yesterday. 

But this latest increase is nothing compared to the astonishing increase of 522% seen over the past year. Now, many stocks have doubled their share price in this time, because prices were abnormally low last year, thanks to the rapidly spreading pandemic. But an over sixfold increase is a bit of a feat. 

An AIM stock with a meteoric rise

Like many other coronavirus impacted stocks, Gattaca too started making gains in November last year. A poor economy is bad news for recruiters, which thrive on booms that create a lot of job opportunities. Within a month of the stock market rally, its share price had doubled.

Since then, its updates have also added consistently to investor optimism, pushing its share price further up. In its latest trading update for the financial year ending 31 July 2021, the company said that recovery has been better than it expected earlier. It was also optimistic about the future. It expects that its recovery will continue and also that its pre-tax profits will be significantly ahead of market expectations”. In the days that followed this update, the Gattaca share price rose sharply again. Within one month of it, its share price had increased some four times. 

It is now trading at multi-year highs. Going by the fact that the economy is expected to pick up speed now, I reckon that its optimism is well placed. And that this provider of engineering and technology recruitments can continue to make gains in the future as well. 

More reasons to like Gattaca

There are two other reasons to like the stock. One, it has a diversified presence across countries including the US and Spain. Its presence in large economies indicates much scope for further growth. It is also a positive at a time when the pandemic is creating uneven recovery across countries. Two, it will also start paying dividends again. The amount remains to be seen, but it is a nice top-up for a growth stock anyway. 

The downside

There are drawbacks to this AIM stock as well though. For instance, it has incurred a net loss for the last three years, which also explains why its share price tumbled from all-time highs in the past few years. Further, recruitments are a cyclical business. Gattaca itself was impacted by the Brexit vote a few years ago. This means that if the economy does not quite take off the way we hope right now, it could be in for another year of losses. And its share price has already run up significantly in the past year. 

Would I buy the Gattaca share?

While it is possible for Gattaca to turn around, I would wait for some more proof of this. If it had just had a pandemic wobble, I would be far more bullish. But its continued struggle to be profitable makes me cautious. However, it is on my watchlist because of its potential.

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.

Manika Premsingh 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.

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