A top AIM stock to buy today

Edward Sheldon highlights an AIM stock that has generated strong growth in recent years and appears to have plenty of investment potential.

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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. On this market – which is less regulated than the main market – there are many up-and-coming businesses that have a lot of potential.

Here, I’m going to highlight one AIM-listed company I’m very bullish on right now. If I was looking to invest in AIM shares today, this stock would be one of my first purchases.

One of my top AIM stocks in 2022

The company is Cerillion (LSE: CER). Founded in 1999, it’s a little-known technology business that provides billing, charging, and customer relationship management (CRM) solutions, predominantly to telecommunication companies. A global operator, it has over 80 customers across 45 countries, including 3, Airtel, Nokia, and Liberty Latin America.

Why I’m bullish on Cerillion

There are a number of reasons I’m bullish on Cerillion. One is that the company is generating strong growth as telecomms companies move to digitalise and streamline their back-office processes.

Over the last five financial years, revenue has climbed from £8.4m to £26.1m. And for the year ending 30 September, analysts expect revenue of £31.3m, which would represent top-line growth of around 20%. For the following year, the consensus revenue forecast is £37.7m.

It’s worth noting that in May, Cerillion published a very strong set of H1 results. For the six months ended 31 March, revenue jumped 26% to £16.1m with annualised recurring revenue up 9% to £9.8m. Meanwhile, adjusted earnings per share were up 62% to 18.6p. On the back of these strong results, the group hiked its half-year dividend by 24% to 2.6p.

We continue to view prospects very positively,” said CEO Louis Hall, who also owns a large chunk of Cerillion stock.

A high-quality company

Another reason I like this AIM company is that it’s very profitable. Over the last five financial years, gross margin has averaged 75% while return on capital employed (ROCE) has averaged 16%.

Additionally, it has been a reliable dividend payer in recent years. And the payout has grown at a healthy rate.

Fair valuation

Finally, the valuation seems quite reasonable to me. With analysts forecasting earnings per share of 37.5p for next financial year, the forward-looking price-to-earnings ratio is around 24. I don’t see that as high, given the company’s growth rate and high level of profitability.

AIM stocks can be risky

Of course, there are a few risks to consider here. One is customer concentration. In FY2021, Cerillion’s largest customer was responsible for 20% of revenue while its top five customers brought in 52% of revenue. If it was to lose one of these customers, its revenues and profits could take a hit.

A second is share price volatility. Cerillion is a small company with a market-cap of just £265m. Share prices of companies this size tend to fluctuate quite a bit.

Overall, however, I see a lot of appeal in Cerillion. At its current price, I’d be very comfortable buying this AIM stock for my portfolio today.

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.

Edward Sheldon has positions in Cerillion. The Motley Fool UK has recommended Airtel Africa Plc and Cerillion. 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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