If you’re looking for big capital gains it’s worth looking at stocks that are listed on the London Stock Exchange’s Alternative Investment Market (AIM). Here, you’ll find plenty of exciting companies that are growing at breakneck speed. With that in mind, here’s a look at three FTSE AIM 100 growth stocks that I think could deliver strong gains this year.
One AIM company that appears to have plenty of momentum right now is online fashion retailer Boohoo (LSE: BOO), which owns the Boohoo, Pretty Little Thing, Karen Millen and Nasty Gal brands. While many other UK retailers are struggling due to changing consumer tastes and shopping habits, Boohoo is growing at a prolific rate due to its popularity among fast-fashion-savvy, digitally-minded millennials – last year revenue rose 48%.
Boohoo shares have had a great run over the last 12 months, rising from around 185p to 312p today. Yet I think they can go higher this year. Sure, the P/E looks high already (it’s roughly 47 when you plug in next year’s consensus earnings forecast), however, when you consider that earnings are expected to climb nearly 30% this year and 25% next year, the P/E-to-growth (PEG) ratio is not overly high.
After rising exponentially between early 2016 and mid-2017, the shares spent a long time (more than two years) consolidating these gains. However, they recently broke out to new highs. I see that as bullish. Jefferies has a price target of 375p.
Another AIM stock that I believe is set for gains in 2020 is video game support specialist Keywords Studios (LSE: KWS), which provides technical services to video game developers such as Activision Blizzard (Call of Duty) and Electronic Arts (FIFA). The video game industry is absolutely booming right now (in the UK the sector now accounts for more than half of the entertainment market), so I’m expecting another strong financial performance from Keywords in 2020. Analysts currently expect revenue growth of 12% this year and I think KWS should be able to achieve that quite comfortably.
When stock markets crashed in the second half of 2018, Keywords experienced quite a significant share price decline. The reason? The stock had got a bit ahead of itself (between January 2016 and August 2018 it roughly 10-bagged). Its P/E was over 50 at one stage. Now that the P/E ratio has fallen back to the low 30s, I believe the stock is well positioned to move higher as the company continues to grow.
Finally, I’m also bullish on the outlook for Gamma Communications (LSE: GAMA), an under-the-radar business communications company that has been generating huge growth in recent years.
Looking at Gamma’s financials, I like what I see. Over the last three years, revenue has climbed nearly 50%, while return on capital employed – a key measure of profitability – has averaged roughly 25%. Debt has remained low. Looking ahead, analysts expect the group to continue growing at a healthy pace, with revenue growth of around 9% forecast for this year. Considering the company’s recent revenue growth, I think there’s a good chance it will exceed that forecast.
Take a look at Gamma’s share price chart and you’ll see that the long-term trend here is up. Given that the stock’s valuation remains reasonable (the forward P/E ratio is 29), I expect the upward trend to continue.
Edward Sheldon owns shares in Boohoo Group and Keywords Studios. The Motley Fool UK has recommended boohoo group and Keywords Studios. 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.