AIM-listed growth stocks can be worth including in a portfolio. These stocks are higher-risk, but on the plus side, they can produce explosive returns.
Here, I’m going to highlight two AIM stocks I like for 2024 and beyond. I think these stocks have the potential to provide decent gains next year.
One of the UK’s top software companies
First up is Cerillion (LSE: CER). It’s a software company that specialises in billing, charging, and customer relationship management solutions for the telecoms industry.
This company just seems to go from strength to strength.
While other companies that serve the telecoms industry have been hit by a downturn in spending recently (like Spirent Communications, Calnex Solutions), Cerillion has continued to grow at an impressive rate.
In October, it advised that after a very strong first six months of its financial year (ended 30 September), the positive trading picture had been maintained through the second half.
It added that revenue for the full year was expected to be approximately £39m (+19% year on year) and that adjusted profit before tax was likely to be “meaningfully ahead” of the consensus market forecast of £14.3m.
More recently, the company announced earlier this month that it had signed a major new contract worth €12.4m with a ‘Tier-1’ telecoms provider based in Europe. This is an exciting development as the company has typically served mid-tier telecoms businesses in the past.
The downside to this AIM stock is that its valuation is quite lofty. Currently, the forward-looking price-to-earnings (P/E) ratio here is about 29, which doesn’t leave much room for error, such as a slowdown in growth.
I don’t see the valuation as a dealbreaker, however, as this is a high-quality company with recurring revenues, a high return on capital, and plenty of growth potential in a world that is undergoing rapid digital transformation.
If it continues to grow, I think its share price is likely to move higher.
An undervalued growth stock
The second stock I want to highlight is DotDigital Group (LSE: DOTD). It’s also a software company. However, it offers solutions for digital marketing and e-commerce.
This stock has been on a wild ride in recent years.
During the pandemic, when online shopping boomed, it ripped higher.
However, more recently, it has fallen out of favour with investors as global e-commerce sales have slowed.
Now, I reckon it’s worth a closer look at its current levels.
For this financial year (ending 30 June 2024), analysts are forecasting revenue growth of a healthy 13% – way higher than the top-line growth most UK companies are generating at present.
Yet right now, the stock’s P/E ratio is only 19. That’s pretty low considering the growth rate and the fact that, as a software company, most of its revenues are recurring in nature.
In other words, I see the stock as undervalued.
I think the big risk here is that conditions in the e-commerce industry deteriorate further and businesses rein in their spending. We can’t rule out this kind of scenario.
Overall, however, I think the risk/reward proposition here is very attractive right now.
