FTSE AIM stock Cake Box Holdings (LSE:CBO) has seen its shares fall in the past 12 months. Could now be a good time to pick up cheap shares? Let’s take a closer look.

Cakes and treats

As a quick reminder, Cake Box is a franchise retailer that manufactures and sells egg-free cakes. The business has grown through franchise expansion and currently has 220 outlets throughout the UK, made up of traditional storefronts and smaller kiosks.

Cake Box shares have been falling in price in the past 12 months. As I write, the shares are trading for 178p. At this time last year, the shares were trading for 302p, which is a 41% drop over a 12-month period.

To buy or not to buy?

So what are the pros and cons of me buying this stock?

FOR: Cake Box’s growth to date has been nothing short of remarkable, in my opinion. The first store opened in 2008 and the company has grown via its franchising model to 220 locations as of 31 March 2022. All of its executive directors have previously led and operated their own successful stores in the past so have experience and a vested interest in the company’s direction and overall success. It continues to open new locations and wants to continue building its presence and profile.

AGAINST: I believe Cake Box shares have been affected by macroeconomic headwinds. These issues are a real worry for me. Soaring inflation, the rising cost of materials and the supply chain crisis could have a material impact on operations, its balance sheet, and profit margins. This could affect investor returns. If profit margins are being squeezed, prices may need to rise, which could also result in a loss of custom. Cake Box is not the only AIM stock to be at the mercy of these headwinds or see its share price decline in recent months.

FOR: Cake Box has an excellent track record of performance. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see that revenue and profit has grown year on year for the past four years. Full-year results for 2022 are due soon but it has already confirmed it is expecting to meet its expectations.

AGAINST: Despite impressive growth, I am wary of businesses that operate and rely heavily on the franchise model. Although there will be processes and fail safes that franchisees must abide by, there is always the risk of operational and quality standards falling. This could have an impact on performance, and eventually returns. This is something I must be wary of.

An AIM stock I’d buy

I like the look of Cake Box shares and would happily add some to my holdings. Since the shares have fallen, they look better value for money on a price-to-earnings ratio of 13. In addition to this, the shares pay a dividend that would boost my passive income stream. It is worth noting that dividends can be cancelled at any time, however.

Overall, I believe Cake Box shares could be a good long-term addition to my holdings. The business has a good track record of growth, is performing well despite macroeconomic challenges, and pays a dividend too.

The post This FTSE AIM stock is down 40% in 12 months. Should I buy it now? appeared first on The Motley Fool UK.

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Jabran Khan has no position in any of the shares mentioned. 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.

Tech stock

Accesso is a tech business based in the UK providing virtual queue management, ticketing, point of sale and guest management software for many venues and businesses across the world. Its most prominent customers include public attractions, theme parks and other tourist hotspots.

So what’s happening with the Accesso share price currently? Well, as I write, the shares are trading at 662p. They look like they’ve hardly budged in a year as 12 months ago they were at 660p. But the stock had actually been higher, and it has dropped 22% since the end of March.

To buy or not to buy?

So what are the pros and cons of me buying this stock?

FOR: Accesso has a good performance track record. I understand past performance is no guarantee of the future, however. Discounting 2020 results, as the tourism sector was hurt by the pandemic, Accesso has been able to grow revenue and profit in recent years. This is encouraging and I only see this rising as the world continues to reopen. Pent-up post-pandemic demand could also boost its results in the future.

AGAINST: It’s a business with a big presence, however in the tech space it’s not exactly a household name. My concern here is that if a better known tech firm with more financial muscle and presence entered this lucrative market, Accesso could be pushed aside causing the stock to lose market share.

FOR: The company has been making positive moves to increase its market share, profile and presence in recent years. Deals with Japanese and Canadian tourism businesses to manage their services have given it access to previously untapped territories. This should boost performance and any returns I hope to make.

AGAINST: Accesso saw many of its operations disrupted due to the pandemic. The global health crisis meant the businesses it serves were hit hard and that fiscal year its financials took a hit. Covid-19 hasn’t disappeared. In fact, certain countries have seen temporary restrictions to curb rising levels of infection. There’s still a risk that the pandemic and virus could impact operations and performance.

An AIM stock I’d buy

Accesso shares look attractive to me and good value for money on a price-to-earnings ratio of close to 15. The general market for its solutions seems to be on the rise and pent up demand has played a big part in this.

It has done well recently in signing up new partners to increase its presence and profile globally.

One of the key points that stands out to me is that many Accesso insiders own shares. This is a huge positive. If those charged with running the business are willing to part with their cash, then maybe I should too. After all, who better understands if further success is ahead than those in charge? Right now I’m tempted to buy Accesso shares.

The post Should I buy this FTSE AIM stock? appeared first on The Motley Fool UK.

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Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Accesso Technology. 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.

Picked well, penny stocks have the potential to dramatically improve my wealth in a short period of time. This is especially true if I hold them in a Stocks and Shares ISA. Doing so means I won’t need to pay tax on any profits I make. 

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Today, I’m returning to look at a company that’s been on my watchlist ever since it was listed in June 2021. Should I finally dip my toe in the water?

Penny stock disaster

Based on recent performance, it’s just as well I’ve held back from pulling the trigger on bathroom specialist Victorian Plumbing (LSE: VIC). From jumping to a 52-week high of almost 342p early on, the share price has since collapsed 75% to 85p. What on earth’s happened here?

I don’t think there’s one single factor to blame. As I remarked at the time, it’s clear that Victorian Plumbing’s IPO was opportunistic and designed to coincide with the boom in DIY seen since the beginning of the pandemic. This allowed original investors to make an absolute killing. And I can’t really blame them for wanting to achieve the best price possible for their stakes. 

The issue with being the largest IPO ever on the junior AIM market is that new investor expectations jumped ahead of reality. Since those heady days, Victorian Plumbing has experienced issues with its supply chain (like many other businesses). Revenue growth has also slowed as the rush to buy new bathroom suites replaced with spending on other things.

Buy the (big) dip?

On the one hand, I’m now able to buy stock in a cash-generative company for 17 times earnings, based on analyst forecasts. That’s not screamingly cheap but nor is it is eye-poppingly expensive. Interestingly, VIC also has a PEG (price/earnings-to-growth) ratio of just 0.5. Anything less than one suggests new buyers are getting a lot of bang for their bucks. 

I’m also attracted to Victorian’s online-only/capital-light business model. It’s already profitable (in contrast to a lot of highly-valued fluff out there) and there’s a decent amount of cash on the books.

Furthermore, the company has a sizeable share of the market and customer reviews are generally very positive. To round things off, CEO/founder Mark Radcliffe retains a huge 47% stake. If anyone wants the company to bounce back, it’s him. 

But let not get ahead of ourselves. An obvious risk with this penny stock is that things could get worse before they get better. A military conflict in Eastern Europe has the potential to hit growth stocks like this, even if it’s irrelevant to selling bathrooms. Margins look like being squeezed for the foreseeable future too.

Victorian Plumbing also has a small free float. Just 35% of the company’s stock is available to trade in the market. That could exacerbate an already bad situation. It only takes a small amount of selling to really move the needle. On a more optimistic note, the reverse is also true. 

My verdict

I do feel like the (prolonged) sell-off of this penny stock has been overdone. Nevertheless, I’m inclined to wait until after this month’s AGM (and a potential update on trading) before deciding whether now is the time to strike.

For now, this penny stock stays on my ISA watchlist.

The post 1 penny stock I’m considering for my Stocks and Shares ISA appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Here, I’m going to highlight five top AIM stocks I’d buy for 2022 and beyond. All five of these companies are already profitable (which reduces risk significantly), have good track records in terms of growth, and look set to benefit from powerful structural trends in the years ahead.

Software stock with momentum

One of my top AIM picks is Cerillion (LSE: CER). It’s a software company that provides billing, charging, and customer relationship management solutions for businesses.

There are a number of reasons I’m bullish here. For starters, the company has a lot of momentum right now. In its full-year results for the year ended 30 September 2021, revenue was up 25% to £26.1m while adjusted earnings per share (EPS) were up 105% to 25.5p. During the year, the group won a number of major new contracts.

Secondly, management appears to be very confident about the future. “Prospects for ongoing growth remain very strong. With a record back-order book and strong new business pipeline, we remain confident of continued momentum over the new financial year,” said CEO Louis Hall in the company’s full-year results.

Third, the company’s financials look very solid. Debt is low while return on capital employed (ROCE) – a key measure of profitability – is trending up.

Finally, the valuation seems very reasonable. At the current share price, the forward-looking price-to-earnings (P/E) ratio is about 30, which is not high for a software company.

Of course, there are risks to consider here. One is that, at this stage, recurring revenues are still relatively low (33% last financial year). So, the company will need to keep landing new contracts to generate top-line growth.

Overall, however, I think the risk/reward proposition here is very attractive for me.

Poised to benefit from economy recovery

My next pick for 2022 is Keystone Law (LSE: KEYS). It’s an innovative UK legal firm that operates a ‘platform’ model in which lawyers can work remotely.

There are two main reasons I like this AIM stock. The first is that the company looks well placed to benefit from the ongoing UK economy recovery. Higher levels of economic activity typically lead to higher demand for legal services.

The second is that as a platform business, the long-term growth potential here is significant. Unlike traditional legal firms, the firm is not constrained by office space. I expect its work-from-anywhere business model to be very appealing to lawyers across the country post-Covid.

A risk though is the valuation. Currently, Keystone Law sports a forward-looking P/E ratio of just under 40. This means the stock is priced for perfection.

This is a high-quality company, however. Over the last five years, revenue has climbed 163% while ROCE has averaged 26%. So, I think I can justify the higher valuation here.

A founder-led company

Another stock that could potentially benefit from the economic recovery is Alpha FX (LSE: AFX). It’s a leading provider of foreign exchange (FX) hedging services. It also offers payment solutions for businesses.

Alpha FX has a lot of momentum right now as well. In a December trading update, the company told investors that trading had remained “strong”. Additionally, it advised that revenue and earnings for 2021 would be ahead of expectations.

One thing I like about AFX is that the company is ‘founder led’. Research has shown that such companies often turn out to be good long-term investments.

I also like the growth here. Between 2015 and 2020, revenue climbed from £5.1m to £46m. For 2021, analysts expect revenue of £72m.

On the downside, this AIM stock is another one that’s expensive. Currently, the forward-looking P/E ratio is near 40. If growth slows, the share price could take a hit. I’m comfortable with this risk, however.

An stock for the 5G revolution

My fourth AIM pick for 2022 is Calnex Solutions (LSE: CLX). It’s a leading provider of testing and measurement services to the telecommunications industry.

The reason I’m bullish on CLX is pretty simple. Right now, the telecommunications industry is undergoing massive transformation as the fifth generation of network technology (5G) is being rolled out. 5G is ultimately the key to all the exciting new technologies we keep hearing about such as self-driving cars and remote surgery. This rollout of new telecommunications technology is likely to create a high demand for network testing services in the years ahead.

In November, Calnex posted a solid set of H1 results for the period to 30 September 2021. The company advised that it had experienced “strong levels of trading” in the first half of its financial year and that it was expecting this trend to continue in the second half. “We continue to capitalise on the global telecom industry’s transition to 5G and the growth of cloud computing,” commented CEO Tommy Cook.

A risk to consider here is the ongoing semiconductor shortage. This could potentially cause disruption. I think this is probably priced into the stock, however. Currently, the forward-looking P/E ratio is just 25, which is quite low relative to the company’s growth.

Growth at a reasonable price

Finally, I like Gamma Communications (LSE: GAMA). It’s a leading provider of business communications solutions.

One reason I’m bullish on Gamma is that the industry it operates in, ‘unified communications’, looks set for strong growth in the years ahead. According to Grand View Research, the industry is set to grow by around 21% per year between now and 2028. This growth should provide huge tailwinds for Gamma, which has grown its top line by over 100% in the last five years.

Another reason I like this AIM stock is that its share price has had a big pullback over the last few months. Back in September, the stock was trading above 2,300p. Today, however, it’s trading near 1,620p. I see this pullback as an opportunity. Currently, the forward-looking P/E ratio is just 23.

But of course, growth could slow in the near term. That’s because many businesses have pulled forward their communications spending during Covid. For long-term investors like myself, however, I think the risk/reward skew here is attractive.

The post 5 top AIM stocks to buy for 2022 appeared first on The Motley Fool UK.

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Edward Sheldon owns Alpha FX, Calnex Solutions Plc, Cerillion, Gamma Communications, and Keystone Law. The Motley Fool UK has recommended Alpha FX and Gamma Communications. 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.

Let’s take a look at what this under-the-radar firm does and, most importantly, question whether such a performance can be sustained. 

What’s this hot stock all about?

Genedrive is a molecular diagnostics business. In its own words, the company’s platform supports “the diagnosis of infectious diseases and for use in patient stratification (genotyping), pathogen detection and other indications”. These include Hepatitis C, military biological targets and, perhaps most importantly, Covid-19. 

Genedrive has been listed since 2007 and shareholders have enjoyed/endured a rollercoaster ride since. However, anyone buying at the height of panic in March 2020 will have done extremely well. Just before Boris Johnson announced the first UK lockdown, the Genedrive share price languished at just under 9p. On Friday, the very same stock closed at almost 62p. 

Why is the Genedrive share price flying? 

On 29 November, Genedrive revealed that its COV19-ID test had been supplied to “a range of potential commercial partners” for review and evaluation. This news was compounded by last week’s announcement that the company had now received the CE mark as intended. In other words, COV19-ID conforms with European health, safety, and environmental protection standards.

I won’t go into the science too much here, save to say that Genedrive’s test (performed via a nasal swab) can deliver positive results in 7.5 minutes. Negative results arrive within 17 minutes. As CEO David Budd commented, this will “allow immediacy and convenience in molecular testing, rather than waiting many hours or days for results from a central laboratory.”

On top of this, Genedrive’s test “offers several orders of magnitude improvement in sensitivity” compared to the usual antigen lateral flow devices.

Rapid results should mean a reduction in transmission rates and, ultimately, a quicker return to normality. That’s potentially great news for, well, everyone but particularly for any operator in the travel, leisure and hospitality space.

More to come?

It’s clear that the Covid-19 tale has several more chapters to run. That could provide a sustained boost to the Genedrive share price. This is especially if deals with partners are announced over the next few weeks and months. A market-cap of just £57m certainly suggests a lot more room for growth compared to the likes of, say, diagnostic peer Novacyt.

Even so, it’s clear only those blessed with a stoical temperament should apply. While GDR has soared in only a few weeks, it’s still way below the 52-week high of 165p. Those who picked up the stock in February or March will still be nursing heavy paper losses.

Due to a relatively small free float (the number of shares available to trade on the market) of 60%, I think this kind of volatility is set to continue. As evidence of this, the Genedrive share price dropped almost 12% on Friday. 

(Very) cautious buy

Recent news from Genedrive is undoubtedly encouraging and I wouldn’t rule out further gains going forward. As such, I’d consider buying a slice of the company today. That said, I’d be sure to only use money I could afford to lose while also remembering that there are other ways to take advantage of the market’s Covid-19 concerns.

The post The Genedrive share price is up over 230% in one month! Is there more to come? appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

I’ve always had a soft spot for online musical instrument and equipment retailer and growth stock Gear4music (LSE: G4M). Unfortunately, today’s interim results from the small-cap have been poorly received by the market and the share price tanked 20% as trading commenced. What’s got investors so spooked?

Bum note

Revenue over the six months to the end of September came in at £64.7m. This was down 8% on the same period in 2020. However, one must remember that G4M benefited hugely from multiple UK lockdowns over that time. As such, beating that haul would always be a challenge. Earnings before interest, tax, depreciation and amortisation (EBITDA) also fell 43% to £4.8m.

On a more positive note, revenue and EBITDA were still 31% and 140% higher respectively than in the same six months in 2019. For me, this is a better gauge of how far the company has come. 

Here’s where things get more problematic. While the dip in sales was inevitable, investors didn’t like the news that revenue over G4M’s third quarter to date has been “slower than expected due to ongoing Brexit supply chain challenges“. Sales in Europe had also been slower than predicted.

This loss of momentum has forced CEO Andrew Wass and co to revise their guidance for the full financial year. EBITDA of “not less than £12m” is now expected — 36% lower than last year. It’s also lower than the £14m projected by analysts.

All this doesn’t look great, especially as the company only upgraded its forecasts back in June following a storming Q1. Nevertheless, G4M does expect the aforementioned challenges to be sorted out by the final quarter as its new distribution hubs in Ireland and Spain get up to speed.

Clearly, a successful pre-Christmas trading period is vital if the shares aren’t to fall further. However, I’m inclined to think that today’s fall is simply a bum note. The unstoppable rise of online shopping, even for very specific items like instruments, should allow G4M to continue grabbing market share. The proposed move into the audio-video space via the acquisition of AV Distribution Ltd is also a sensible move and should help to diversify earnings. 

There’s still much to like about this growth stock and I’d be willing to buy at this level.

On song

G4M is not the only music-related growth stock out there. Another company — audio products supplier Focusrite (LSE: TUNE) — also reported to the market this morning.

In sharp contrast to G4M, TUNE reported a 34% jump in revenue to just under £174m. Adjusted EBITDA also soared 67% higher to £47.5m as musicians and podcasters snapped up Focurite’s products “in record numbers” over lockdowns.

There could be more good news to come. As live events return, CEO Tim Carroll said that demand had “remained strong” into the new financial year. Product launches also make him “cautiously optimistic” on achieving “modest revenue growth“. However, operating costs are expected to rise, partly in light of supply chain pressures.

Of the two growth stocks mentioned, I’d probably snap up G4M over TUNE. I’ve always felt that the latter’s valuation was getting ahead of itself. Even before today’s 8% rise, the stock was trading on 39 times forecast earnings. As good a company as this is, that’s very rich.

For me, G4M probably offers a better margin of safety.

The post The Gear4music (G4M) share price just crashed. I’d buy this growth stock now appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Focusrite and Gear4music. 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.

With concerns over inflation, supply chain issues and the perpetual elephant in the room that is Covid-19, I think it’s wise to keep a wishlist of stocks I’d be ready to buy if the recent sag in momentum turns into a correction. Having already looked at the FTSE 100 and FTSE 250, today it’s the turn of AIM stocks.

On song

The progress of audio equipment and software supplier Focusrite (LSE: TUNE) has been a thing to behold. In five years, the share price is up almost 900%! So much for the general belief among investors that risky AIM stocks never deliver.

A beneficiary of multiple UK lockdowns, the High Wycombe-based business now expects to report roughly £173m in revenue for the year to the end of August. That’s 33% up on the previous year. It’s also ahead of what the market was expecting. 

This is not to say the £1bn cap is risk-free. In addition to being susceptible to the global shortage of semiconductors, Focusrite recently warned on “significantly higher than normal” freight and shipping costs. This makes the current P/E of 44 look very rich, in my opinion.

Yes, it may boast eight brands and a net cash position, but I feel no stock is worth buying at any price. If a market correction comes, however, I’ll be first in the queue. 

Growth potential

Global identity specialist GB Group (LSE: GBG) is another AIM stock that has rewarded long-term holders. While unable to compete with Focusrite’s gains, the shares are still up over 175% since 2016. Again, this demonstrates how I might be able to generate above-average returns by looking for quality businesses on the junior, rather than the main, market.

I wouldn’t bet against GBG continuing to deliver. As the AIM stock highlighted in July, the huge growth in online activity should mean trading remains buoyant at each of its divisions: Identity, Location and Fraud. Indeed, the near £2bn-cap company said that it had already made a “good start” to its new financial year following record business in FY21. 

Defensive AIM stock

A final AIM stock on my buy list in the event of a significant market wobble is CVS Group (LSE: CVSG). Having doubled in value over the last 12 months, I remain convinced the veterinary services provider is a great play on the UK’s enduring love for pets. There certainly won’t be a lack of demand considering the huge number of households that have bought a puppy, kitten or (insert animal of choice) over the last 18 months or so. 

Once again, however, the valuation looks unattractive. CVSG shares trade on a forward P/E of 32. That’s still high, especially as margins in this line of work aren’t particularly large. Another potential risk here is that it may struggle to recruit the best talent to meet growth targets. I still regret not snapping up the stock back in 2019 when concerns over the shortage of suitably qualified vets following Brexit sent the share price down to just above the 400p mark. 

For now, CVSG stays on my watchlist.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Focusrite. 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.

How’s it been doing?

It’s doing very well. Revenue moved 19% higher over the 12 months to the end of May, supported by many/most of us being confined to our homes. The £90.7m logged was a record for the company. A maiden contribution from Frontier Foundry — its label for third-party publishing — was another positive. 

All told, earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 21% to £38.1m, lending great support for Frontier’s ‘launch and nurture’ strategy. This is where it releases a game and then updates it over time; the idea being that a player will become increasingly invested in a game and continue playing the title for years to come. To date, FDEV has four such franchises: Elite Dangerous, Planet Coaster, Jurassic World Evolution and Planet Zoo.

Can all this continue?

This growth stock’s next game — Jurassic World Evolution 2 — is due for release in early November in time for Christmas. Frontier Foundry will also release three titles in the current financial year (Lemnis Gate, FAR: Changing Tides and Warhammer 40,000: Chaos Gate — Daemonhunters). As a result, the mid-cap thinks revenue will come in somewhere between £130m to £150m. That’s a huge jump on today’s already great numbers.

It potentially gets even better the following year. In FY23, between £160m and £180m is expected thanks to contributions from its hotly-anticipated first Formula 1 management game and its Warhammer Age of Sigmar IP real-time strategy title. The latter is licenced from market darling and FTSE 250 constituent Games Workshop.

So, what are the risks?

One potential issue is that more casual gamers will want to do other things with their time post-pandemic. In this way, Frontier is no different from other lockdown winners such as Bloomsbury Publishing and musical instrument seller Gear4music. This is inevitable to some degree but its impact should not be discounted.

Another potential drawback is that earnings at any developer can fluctuate from year to year. This is usually due to the irregular release of games. Even if release dates were consistent, there’s a chance that a particular game won’t be popular. Moreover, a competitor could release something that generates higher interest. In this way, gaming is no different from the music or movie industries.

Even nailed-on winners can suffer teething issues. Frontier experienced this itself in the last year following the release of a bug-laden Elite Dangerous: Odyssey. Although things now seem to be fixed, the episode certainly did its reputation with gamers no favours. It might also explain why this growth stock has been quite volatile in recent months.

Considering these potential headwinds, Frontier’s forward P/E of 38 feels punchy, to say the least. Then again, I wouldn’t be surprised if a deep-pocketed suitor submitted a generous bid for the whole company at some point anyway. That’s exactly what happened to one of FDEV’s highly-rated peers earlier this year.

Cash rich

Potential obstacles aside, I remain positive about this UK growth stock. Backed with over £42m in net cash on the balance sheet, I reckon this is a cautious buy for my own portfolio. 

The post 1 UK growth stock I’d buy following today’s record results! appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Frontier Developments. 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.

Winning AIM stock

Headquartered in Israel but with offices around the world, Tremor is a leader in Video and Connected TV advertising. Its platform helps clients, such as Amazon and Disney, “reach relevant audiences and publishers to maximize yield on their digital advertising inventory“. As one might suspect, the gradual recovery in economic conditions and business confidence over the last year or so has been a boon to the company.

This month’s results — covering trading in the first half of 2021 — showed a company in rude health. Revenue more than doubled to $152.4m. In addition to being completely organic, CEO Ofer Druker said that this growth was “one of the highest” across Tremor’s peer group. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rocketed a staggering 3,545% to $64.8m year-on-year.

Another reason for the share price rise is the recent listing on NASDAQ (home of tech titans such as Alphabet and Facebook). Having a joint listing in the US should allow is to raise more money in the future to help fund acquisitions as well as provide working capital. Almost $129m was raised from the IPO in June.

Can it continue?

Unsurprisingly, Tremor’s management is bullish on the company’s outlook. It now expects Q3 revenue (excluding traffic acquisition costs) of “at least” $75m and adjusted earnings of around $37m. However, this is dependent on no “major Covid-19-related setbacks that may cause economic conditions to deteriorate or otherwise significantly reduce advertiser demand“. To be fair, I think this would apply to most listed firms. 

But isn’t this encouraging guidance already reflected in the price? Well, 26 times earnings is what I’d need to pay for the stock right now. That’s high, although arguably not excessive compared to elsewhere in the market. Knowing that the company looks very financially secure helps takes the sting out (TRMR has zero debt and had $275.5m in cash at the start of July). I don’t mind paying up for stocks as long as they look sufficiently resilient. 

However, it’s worth me being aware of a few things. For one, the Tremor share price has had some very volatile days. Last Friday, for example, it was down 4%. In the past, it’s had a few days where it has climbed and fallen by double-digit percentages. A low ‘free float’ might be partly responsible.

While not a risk as such, it’s also worth stating that there’s no dividend stream. So, if I were hunting for income, I’d need to look elsewhere. 

Tempting buy

Tremor International is a fine example of how AIM stocks can provide incredible returns over a short period. And while buying one year ago would clearly have been a far better thing to do, I must say that I still like the look of the shares now.

As long as I maintain a diversified portfolio (somewhat mandatory for those fishing for winners in the junior market), I’d be comfortable picking up some TRMR when markets reopen tomorrow.

The post This AIM stock has exploded. Is there more to come? appeared first on The Motley Fool UK.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, and Walt Disney. The Motley Fool UK 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.

Novacyt

First up is former penny stock Novacyt (LSE: NCYT). Based on analyst projections, shares in the clinical diagnostics specialist trade on just five times earnings. That seems ludicrously cheap considering this month’s half-year numbers.

Total revenue jumped 50% to £94.7m in the first six months of 2021 compared to the same period last year. A little under £54m of this came from overseas orders and the private UK testing market. The latter includes buyers operating in, for example, the film and travel industries.

Looking ahead, Novacyt thinks there could be more growth ahead thanks to fresh contracts, a new PROmate Covid-19 test launch, travel routes reopening and the colder weather arriving. While this all sounds great, there’s a chance that the last two of these won’t happen as quickly as the company would like. An ongoing dispute with the Department of Health and Social Care isn’t ideal either. 

Taking into account how volatile the shares have been over the last year, Novacyt is still only a cautious buy for me.

Serica Energy

Another ‘cheap’ AIM stock is Serica Energy (LSE: SQZ). The North Sea-focused oil and gas company’s shares trade on just five times earnings. That might prove a bargain in time.  In July, SQZ announced promising flow test results from its 50%-owned Columbus development well. The stabilised rate was “at the upper end” of what Serica expected. Once up and running, it’s believed the well will produce roughly 7,000 boe/d (barrel of oil equivalent per day).     As someone with only mixed success in this sector, I’m hesitant to buy shares in Serica. That said, I like that the company began 2021 with no debt and £90m in cash. The fact that the AIM stock is already producing from its Bruce, Keith and Rhum fields (previously owned by BP) is another positive. 

However, the risks involved in future drilling campaigns (such as the North Eigg project), not to mention the opportunities available elsewhere, can’t be overlooked. So, Serica would be another cautious buy for me.

Atalaya Mining

For an even lower valuation, I’d check out Atalaya Mining (LSE: ATYM). It’s trading at just four times forecast earnings. 

Atalaya produces copper concentrates and silver by-product at its 100% Proyecto Riotinto site in Spain. It also has an agreement to own up to 80% of Proyecto Touro, a brownfield copper project in the same country. And, based on recent numbers, this is another AIM stock that could prove to be a steal.

Benefiting from a strong copper price, EBITDA rose to just under €100m in the first half of 2021. Like Serica, Atalya also has a strong balance sheet with net cash of €37.8m at the end of June.

Of course, risks abound. Aside from setbacks that plague exploration, ATYM is never in complete control of its fate. Long-term demand for copper looks robust but commodity prices can be very hard to predict in the near term. That’s fine if I’m being paid to wait. However, there’s no dividend stream with Atalaya.

It goes on my watchlist for now. 

The post 3 dirt-cheap AIM stocks. Should I buy? appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.