The London Stock Exchange’s Alternative Investment Market (AIM) is home to many exciting growth companies. Online fashion retailer boohoo, identity specialist GB Group, and renewable energy company ITM Power are some great examples of AIM-listed companies.
There’s one AIM stock in particular though, that has me really excited. This business lies at the heart of a number of technological mega-trends, and looks well placed to generate substantial growth in the years ahead. Here’s a look at why I’d buy this stock for my portfolio today.
My top AIM stock today
The company I’m referring to is Calnex Solutions (LSE: CLX), an under-the-radar Scottish business that specialises in telecommunications network testing solutions. Founded in 2006, it listed on the AIM in 2020, and currently has a market capitalisation of around £150m.
Calnex is a global leader in the telecoms network testing space with a distinguished list of customers. Today, it serves businesses across the entire telecoms value chain including network carriers such as BT Group, hardware providers such as Ericsson, and chip companies such as Intel. The group is led by founder Tommy Cook, who has over 35 years’ experience in telecoms testing and measurement.
Why I’m bullish on CLX
The main reason I’m bullish here is that the global telecoms industry is going through a period of major change today. Not only is new 5G network technology being rolled out but new technologies (cloud computing, autonomous vehicles, smart cities, etc.) are emerging. This means that telecoms networks will need to be tested rigorously in the years ahead. Calnex is in the right spot at the right time.
Strong momentum
Looking at recent announcements, Calnex appears to have plenty of momentum right now.
Earlier this month, the company advised that it continues to experience “high demand” for its range of test and measurement solutions and that results for FY2022 (the year ended 31 March 2022) would be slightly ahead of the market’s expectations. It added that the order book was sitting at “record levels” heading into FY2023, giving the board confidence that the group can deliver “significant, sustainable growth” over the coming years.
The group also announced the acquisition of iTrinegy Limited, a leading developer of software defined test networks technology, for £2.5m. iTrinegy generated revenues of around £1.4m in the year to 30 September 2021, and Calnex expects the business to be an important contributor to group profit in subsequent years.
A high-quality business
Looking past the growth potential here, I like the fact that Calnex is a high-quality company. Over the last five years, it has generated consistent revenue and profit growth. Meanwhile, return on capital employed has been high. On top of this, the balance sheet is strong and the company has started paying a small dividend. Overall, there’s a lot to like about this AIM stock, in my view.
I’d buy this AIM stock today
Now, of course, there are some risks to consider here.
One is the valuation. At present, Calnex trades on a forward-looking price-to-earnings ratio of about 31. That’s not an outrageous multiple, however, it probably doesn’t leave a huge margin of safety. If revenue or earnings growth slows, the stock could underperform.
Another is supply chain issues. These could potentially create challenges in the short term.
Overall, however, I’m very bullish here. I’d snap up this AIM stock today.
