Many stocks on the London Stock Exchange’s Alternative Investment Market (AIM) have delivered strong returns for investors in recent years. Just look at the performance of the FTSE AIM 100 index. Over the five years to the end of June 2021, this index returned 93%. By contrast, the FTSE 100 returned just 31% over the period.
Here, I’m going to highlight two AIM stocks I’d buy for my portfolio today. Both of these companies are growing rapidly, and I think it’s a good time to buy their shares.
A top AIM stock
One stock that strikes me as a ‘buy’ right now is online fashion retailer ASOS (LSE: ASC), the largest in the FTSE AIM 100 index. It’s underperformed in 2021 due to the fact that investors have been focused on reopening stocks. I think this underperformance has created a buying opportunity.
ASOS has grown consistently in recent years. Over the last half-decade (FY2015 to FY2020), revenues climbed at an annualised growth rate of 23.4%. Looking ahead, further growth is expected. For FY2021 and FY2022, City analysts expect revenue growth of 23% and 18% respectively. I don’t think this level of growth is fully reflected in ASOS’ valuation. Currently, the stock trades on a forward-looking P/E ratio of 34, which isn’t particularly high for a growth stock.
One risk to consider here is competition from other online retailers. Not only does ASOS face rivalry from other fashion retailers such as Boohoo but it also faces competition from larger online retailers such as Amazon.
However, see the overall risk/reward proposition here as attractive. I’d buy the stock while it’s a little out of favour.
A growth stock for the 5G revolution
Another AIM stock I’d buy today is Calnex Solutions (LSE: CLX). It’s a leading provider of specialist testing and measurement equipment for telecommunications networks.
The reason I’m bullish on Calnex is that 5G networks are going to require an enormous amount of infrastructure. I was reminded of this recently when I travelled by train from London to Devon. For at least half the journey, phone reception was terrible. To handle new technologies such as autonomous vehicles, telecommunication networks will need to be far more robust. Calnex’s testing services should be in high demand.
Calnex has grown at an impressive rate in recent years. Between FY2018 and FY2021, revenue climbed from £8.4m to £18m. The group may not see huge growth this financial year (ending 31 March, 2022) because last year, customers pulled their orders forward. The company has advised however, that it sees a “significant opportunity” for both organic and acquisitive growth in the medium term and that it looks to the future with confidence.
A risk to remember here is currency related. Calnex generates a large proportion of its sales in US dollars. If the pound strengthens, these US dollar sales will be worth less. Calnex is also a very small company so its share price could be volatile.
But I’m comfortable with these risks. To my mind, this stock has a lot of potential. It currently trades on a forward-looking P/E ratio of 26, which I see as a very reasonable valuation.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns shares of ASOS, Amazon, Calnex Solutions Plc, London Stock Exchange, and boohoo group. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended ASOS and boohoo group and has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. 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.