3 top AIM stocks to buy before the market recovers

The UK’s Alternative Investment Market (AIM) has underperformed in 2022. Here are three AIM stocks Edward Sheldon would buy before the market rebounds.

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The stock market has taken a big hit in 2022 and nowhere is this more apparent than the UK’s Alternative Investment Market (AIM). This year, the FTSE AIM 100 index is down around 30%. At some stage in the not-too-distant future, we’re likely to see the market recover. And when it does, the share prices of beaten-up AIM stocks should pop higher. With that in mind, here’s are three of the index’s top stocks I’d buy for my portfolio before the market rebounds.

This AIM stock is cheap

First up, Volex (LSE: VLX). It’s a British manufacturing company that specialises in power cords and cables. Its products help power a range of electronic devices including computers, medical equipment, and electric vehicles (EVs).

Volex’s recent full-year results, for the year ended 3 April, showed the company has a lot of momentum right now. For the year, group revenue was up 39% to $614.6m, while EV revenue alone surged 96% to $104.2m. Underlying profit before tax rose 24% to $51.4m.

This momentum is not reflected in the company’s valuation however. Right now, the stock trades at just 11 times this year’s earnings forecast. At that multiple, I see a huge amount of value.

It’s worth pointing out that debt has risen in recent years as a result of acquisitions. This adds risk.

All things considered however, I think the risk/return proposition here is attractive.

High-growth market

Next is GB Group (LSE: GBG). It’s a leading provider of identity management solutions that serves over 20,000 customers globally.

In recent years, this AIM stock has often had a very high valuation. Today however, it’s a different story. After a big share price fall in 2022, GB now trades at just 19 times this year’s estimated earnings.

At that level, I see a lot of value on offer. GB has a good track record when it comes to revenue growth. Over the last five years, it has grown its top line by about 180%. Meanwhile, the growth potential ahead is significant, given the growing prevalence of online fraud.

It’s worth noting that GB has made a major acquisition recently. So there’s some integration risk here.

With the P/E ratio now under 20, I think the stock is worth buying though. At that valuation, I wouldn’t be surprised if GB attracted takeover interest.

Major opportunities ahead

Finally, I’d also buy Alpha FX (LSE: AFX). It’s a founder-led financial services company that offers FX risk management and payments.

Alpha FX has grown at a phenomenal rate in recent years, registering three-year revenue growth of about 230%. And looking forward, the company expects to keep growing. In March, management said it sees “major opportunities” across all of its businesses.

Yet like a lot of other AIM stocks, Alpha FX has seen its share price fall significantly in 2022 as sentiment towards small-caps has deteriorated.

I’m looking at this share price weakness as a buying opportunity as I expect the stock to rebound when the economic backdrop improves.

This stock isn’t the cheapest around. Currently, the forward-looking P/E ratio is about 25. So the company will need to keep growing at a strong rate or its share price could fall.

But I’m confident it will, as its CEO is very ambitious.

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 considered so you should consider taking independent financial advice.

Edward Sheldon has positions in Alpha FX, GB Group, and Volex. The Motley Fool UK has recommended Alpha FX. 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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