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5 top AIM stocks to buy for 2022

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The London Stock Exchange’s Alternative Investment Market (AIM) can be a great place to find under-the-radar growth stocks. In this area of the UK stock market, there are many exciting companies that are growing at a rapid rate.

Here, I’m going to highlight five top AIM stocks I’d buy for 2022 and beyond. All five of these companies are already profitable (which reduces risk significantly), have good track records in terms of growth, and look set to benefit from powerful structural trends in the years ahead.

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Software stock with momentum

One of my top AIM picks is Cerillion (LSE: CER). It’s a software company that provides billing, charging, and customer relationship management solutions for businesses.

There are a number of reasons I’m bullish here. For starters, the company has a lot of momentum right now. In its full-year results for the year ended 30 September 2021, revenue was up 25% to £26.1m while adjusted earnings per share (EPS) were up 105% to 25.5p. During the year, the group won a number of major new contracts.

Secondly, management appears to be very confident about the future. “Prospects for ongoing growth remain very strong. With a record back-order book and strong new business pipeline, we remain confident of continued momentum over the new financial year,” said CEO Louis Hall in the company’s full-year results.

Third, the company’s financials look very solid. Debt is low while return on capital employed (ROCE) – a key measure of profitability – is trending up.

Finally, the valuation seems very reasonable. At the current share price, the forward-looking price-to-earnings (P/E) ratio is about 30, which is not high for a software company.

Of course, there are risks to consider here. One is that, at this stage, recurring revenues are still relatively low (33% last financial year). So, the company will need to keep landing new contracts to generate top-line growth.

Overall, however, I think the risk/reward proposition here is very attractive for me.

Poised to benefit from economy recovery

My next pick for 2022 is Keystone Law (LSE: KEYS). It’s an innovative UK legal firm that operates a ‘platform’ model in which lawyers can work remotely.

There are two main reasons I like this AIM stock. The first is that the company looks well placed to benefit from the ongoing UK economy recovery. Higher levels of economic activity typically lead to higher demand for legal services.

The second is that as a platform business, the long-term growth potential here is significant. Unlike traditional legal firms, the firm is not constrained by office space. I expect its work-from-anywhere business model to be very appealing to lawyers across the country post-Covid.

A risk though is the valuation. Currently, Keystone Law sports a forward-looking P/E ratio of just under 40. This means the stock is priced for perfection.

This is a high-quality company, however. Over the last five years, revenue has climbed 163% while ROCE has averaged 26%. So, I think I can justify the higher valuation here.

Young woman sat at laptop by a window

A founder-led company

Another stock that could potentially benefit from the economic recovery is Alpha FX (LSE: AFX). It’s a leading provider of foreign exchange (FX) hedging services. It also offers payment solutions for businesses.

Alpha FX has a lot of momentum right now as well. In a December trading update, the company told investors that trading had remained “strong”. Additionally, it advised that revenue and earnings for 2021 would be ahead of expectations.

One thing I like about AFX is that the company is ‘founder led’. Research has shown that such companies often turn out to be good long-term investments.

I also like the growth here. Between 2015 and 2020, revenue climbed from £5.1m to £46m. For 2021, analysts expect revenue of £72m.

On the downside, this AIM stock is another one that’s expensive. Currently, the forward-looking P/E ratio is near 40. If growth slows, the share price could take a hit. I’m comfortable with this risk, however.

An stock for the 5G revolution

My fourth AIM pick for 2022 is Calnex Solutions (LSE: CLX). It’s a leading provider of testing and measurement services to the telecommunications industry.

The reason I’m bullish on CLX is pretty simple. Right now, the telecommunications industry is undergoing massive transformation as the fifth generation of network technology (5G) is being rolled out. 5G is ultimately the key to all the exciting new technologies we keep hearing about such as self-driving cars and remote surgery. This rollout of new telecommunications technology is likely to create a high demand for network testing services in the years ahead.

In November, Calnex posted a solid set of H1 results for the period to 30 September 2021. The company advised that it had experienced “strong levels of trading” in the first half of its financial year and that it was expecting this trend to continue in the second half. “We continue to capitalise on the global telecom industry’s transition to 5G and the growth of cloud computing,” commented CEO Tommy Cook.

A risk to consider here is the ongoing semiconductor shortage. This could potentially cause disruption. I think this is probably priced into the stock, however. Currently, the forward-looking P/E ratio is just 25, which is quite low relative to the company’s growth.

White BT van in front of building

Growth at a reasonable price

Finally, I like Gamma Communications (LSE: GAMA). It’s a leading provider of business communications solutions.

One reason I’m bullish on Gamma is that the industry it operates in, ‘unified communications’, looks set for strong growth in the years ahead. According to Grand View Research, the industry is set to grow by around 21% per year between now and 2028. This growth should provide huge tailwinds for Gamma, which has grown its top line by over 100% in the last five years.

Another reason I like this AIM stock is that its share price has had a big pullback over the last few months. Back in September, the stock was trading above 2,300p. Today, however, it’s trading near 1,620p. I see this pullback as an opportunity. Currently, the forward-looking P/E ratio is just 23.

But of course, growth could slow in the near term. That’s because many businesses have pulled forward their communications spending during Covid. For long-term investors like myself, however, I think the risk/reward skew here is attractive.

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Edward Sheldon owns Alpha FX, Calnex Solutions Plc, Cerillion, Gamma Communications, and Keystone Law. The Motley Fool UK has recommended Alpha FX and Gamma Communications. 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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