Earlier today, I highlighted three AIM stocks that I’d buy for passive income. Here, I’m sticking with the junior market but instead focusing on shares offering, it would appear, a lot of bang for my buck. But are they really great value considering the risks involved?
First up is former penny stock Novacyt (LSE: NCYT). Based on analyst projections, shares in the clinical diagnostics specialist trade on just five times earnings. That seems ludicrously cheap considering this month’s half-year numbers.
Total revenue jumped 50% to £94.7m in the first six months of 2021 compared to the same period last year. A little under £54m of this came from overseas orders and the private UK testing market. The latter includes buyers operating in, for example, the film and travel industries.
Looking ahead, Novacyt thinks there could be more growth ahead thanks to fresh contracts, a new PROmate Covid-19 test launch, travel routes reopening and the colder weather arriving. While this all sounds great, there’s a chance that the last two of these won’t happen as quickly as the company would like. An ongoing dispute with the Department of Health and Social Care isn’t ideal either.
Taking into account how volatile the shares have been over the last year, Novacyt is still only a cautious buy for me.
Another ‘cheap’ AIM stock is Serica Energy (LSE: SQZ). The North Sea-focused oil and gas company’s shares trade on just five times earnings. That might prove a bargain in time. In July, SQZ announced promising flow test results from its 50%-owned Columbus development well. The stabilised rate was “at the upper end” of what Serica expected. Once up and running, it’s believed the well will produce roughly 7,000 boe/d (barrel of oil equivalent per day). As someone with only mixed success in this sector, I’m hesitant to buy shares in Serica. That said, I like that the company began 2021 with no debt and £90m in cash. The fact that the AIM stock is already producing from its Bruce, Keith and Rhum fields (previously owned by BP) is another positive.
However, the risks involved in future drilling campaigns (such as the North Eigg project), not to mention the opportunities available elsewhere, can’t be overlooked. So, Serica would be another cautious buy for me.
For an even lower valuation, I’d check out Atalaya Mining (LSE: ATYM). It’s trading at just four times forecast earnings.
Atalaya produces copper concentrates and silver by-product at its 100% Proyecto Riotinto site in Spain. It also has an agreement to own up to 80% of Proyecto Touro, a brownfield copper project in the same country. And, based on recent numbers, this is another AIM stock that could prove to be a steal.
Benefiting from a strong copper price, EBITDA rose to just under €100m in the first half of 2021. Like Serica, Atalya also has a strong balance sheet with net cash of €37.8m at the end of June.
Of course, risks abound. Aside from setbacks that plague exploration, ATYM is never in complete control of its fate. Long-term demand for copper looks robust but commodity prices can be very hard to predict in the near term. That’s fine if I’m being paid to wait. However, there’s no dividend stream with Atalaya.
It goes on my watchlist for now.