Taken back in 1994, it’s become an iconic image of how a small home business can turn into a billion-dollar company. A mere three years later, Amazon went public with a share price of only 9c (when adjusting for stock splits). Twenty-seven years later, the stock’s up 190,000%. That’s a 32.2% return a year, on average.

Since then, the US tech industry’s exploded, with companies like Nvidia, AMD and SMCI achieving multi-billion dollar valuations.

But the UK lags behind. Even our most promising tech darling, ARM, jumped ship for the green grass of the US. The likes of Darktrace, Softcat and Computacentre show promise — but I think a much smaller stock could be our next big thing.

Cerillion

A constituent of the smaller tech-focused AIM index, Cerillion‘s (LSE: CER) an upcoming £570m IT services company. At first glance, it appears to be little more than a managed services provider focusing on billing and charging. 

But there’s a reason why it’s the top performer on the AIM index over the past five years, up 1,200%. 

The company’s expertise in designing and implementing AI-enhanced multi-service communication systems has driven high demand. As an ex-IT industry professional, it looks to me like a company that should have a much higher valuation.

I won’t bore the non-tech readers with details but if it’s delivering as advertised (and reviews suggest it is) then I’m very bullish about its future.

Financials

Its earnings growth rate of 39%’s already double that of the UK software industry and not far off US tech giant Nvidia. In fact, the companies share several similarities. Both have high price-to-earnings (P/E) ratios and overvaluation estimates of 40-60%.

Earnings growth’s forecast to slow to 9.8% a year going forward, which could push up the P/E ratio even further. That might dampen investor sentiment.

Usually, that would make me question further growth. But Cerillion’s future return on equity (ROE) is forecast to be 30% in three years, with earnings per share (EPS) expected to grow 24% by 2027. 

So I think it’s just getting started.  

Risk/reward

Before I get too carried away, such stocks are usually more risky investments. With lower liquidity and a smaller market-cap, it takes less to move the price. Even something as small as a change in CEO can send things into a downward spiral.

Moreover, tech may be a high-growth industry but it’s also highly competitive. Cerillion’s by no means alone in this space and it’s smaller than many competitors. All it takes is one big player to come out with a similar idea and suddenly sales dry up.

So it’s an increased risk/reward situation.

Final thoughts

As is often the case in tech, ground-breaking companies outpace a market that’s slow to adopt new ideas. As such, Cerillion could be primed for a bright future.

With major US tech stocks looking increasingly overvalued, maybe it’s time to give some space to the little guys. I seldom find a small-cap stock with this much potential so I plan to buy the shares this month.

The post The UK stock market’s lagging behind in tech. Could this thriving AIM stock change that? appeared first on The Motley Fool UK.

Here, I’m going to look at some key takeaways from this interesting list of stocks (which the FT named the ‘Unglamorous Seven’). I’m also going to highlight a UK stock that I believe has a chance of providing similar kinds of returns in the future.

What can we learn from the Unglamorous Seven?

Looking at these stocks, and the huge returns they’ve generated for investors, I think there are a few takeaways. One is that picking individual stocks can be a lucrative investment strategy.

In recent years, a lot of investors have moved away from individual stocks in favour of tracker funds. Now, there’s nothing wrong with tracker funds, of course. These products can be very effective long-term investments. However, by including individual stocks in a portfolio, investors may be able to generate higher long-term returns.

Another is that it can pay to invest some money in a few, smaller, up-and-coming companies (instead of all the usual large-cap stocks like BP, Tesco, and Shell). Twenty years ago, all of these companies were relatively small. Even today, none of these seven are really household names.

A third takeaway is that they’re all what I would describe as high-quality businesses. While they’re not particularly exciting (hence the Unglamorous Seven moniker), they all offer important services that customers tend to pay for continually. Meanwhile, they’re all leaders in their fields with competitive advantages.

Additionally, they all generate high returns on capital, meaning that they’re very profitable. This last point is worth highlighting. Over the long term, companies that generate consistently high returns on capital tend to get much bigger.

Finally, a long-term investing mindset has been important. The 1,000% returns have not come overnight. They’ve come over two decades.

A future super stock?

As for stocks with the potential to return 1,000% over the next 20 years, I see plenty on the London Stock Exchange.

But one I want to highlight is Cerillion (LSE: CER). It’s a fast-growing technology company that specialises in back office software for telecoms companies and other businesses.

This company is very small today. Currently, its market-cap’s only around £430m. If it was to generate a 1,000% return from here, the market-cap would still only be around £5bn (ie the bottom end of the FTSE 100 in terms of size).

Looking ahead, I think it has plenty of growth potential. Today, many telecom companies are still using old, inefficient legacy systems. I expect telco digital transformation to remain a big theme for many years.

As for profitability, it’s impressive. Over the last five years, return on capital has averaged about 23%, which is excellent.

Of course, there’s no guarantee the stock will provide strong returns going forward. One risk is CEO Louis Hall leaving or retiring. In recent years, Hall has done an excellent job.

Overall though, I’m very optimistic about the stock’s long-term prospects.

The post These 7 UK shares turned £50k into £550k appeared first on The Motley Fool UK.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

boohoo.com

What it does: boohoo.com is an online fashion retailer, and owns a number of well-known UK brands.

By Alan Oscroft. Yes, I’m going for it. I’m picking boohoo.com (LSE: BOO), the stock that burned me in the past. Twice. I bought, the price fell, I bought more… and the rest is painful history.

At the interim stage, the bottom line showed a loss, but we did see adjusted EBITDA of £31.3m. And analysts expect boohoo to be back in profit by 2026. The board also told us it’s identified £125m in cost savings, which should be delivered in 2024 and 2025.

The cash situation looked fine, with a “liquidity position of £290m.“

There are fears about the environmental damage done by the fast fashion business. And with competition so intense, boohoo might not make it back. It’s long lost any first-mover advantage it once had.

But if we see positive earnings by 2026, I think it could be a profitable buy. Big risk, though, and I wouldn’t put much (more) into it.

Alan Oscroft owns boohoo.com shares.

Cerillion

What it does: Cerillion is a software business that provides billing, charging, and customer relationship management (CRM) solutions, predominantly to telecoms firms.

By Edward Sheldon, CFA. Shares in software company Cerillion (LSE: CER) have had a good run in recent years. But I see the potential for further share price gains. 

This is a company that is firing on all cylinders right now. For the financial year ended 30 September 2023, revenue, pre-tax profit, and the new customer sales pipeline all hit new all-time highs, and the dividend was increased by 23%. 

And looking ahead, management appears to be quite optimistic about the future. “With a record back-order book and strong new customer sales pipeline, this leaves us confident about Cerillion’s growth prospects in the new financial year and beyond,” said CEO Louis Hall in November. 

On the downside, the company’s valuation is quite high. So, there’s not a lot of room for error (e.g. a slowdown in revenue growth).

Taking a long-term view, however, I’m very bullish on the AIM stock.

Edward Sheldon owns shares in Cerillion

Yü Group

What it does: Yü Group supplies gas, electricity and water to small and medium-sized businesses (SMEs) across the UK.

By Harshil Patel : Up by a whopping 235%, Yü Group (LSE:YU.) has been the best performing stock in the Aim 100 over the past year.

Share price gains have leaped alongside soaring sales and profits. Sales in 2023 jumped by 65% from the prior year to £460m. Pre-tax profits multiplied almost seven-fold to £39.7m from £5.8m in 2022.

Yü Group focuses on supplying utilities to businesses. And its Digital by Default strategy seems to be working well. It offers busy business owners a quick way to sign up and monitor usage and bills.

Given a price-to-earnings ratio of just nine, it doesn’t look expensive just yet. That said, this is a competitive sector. And customers can be price sensitive. I’d carefully monitor Yü’s progress and be alert for any slowing growth.

That said, this Aim company is seeing strong bookings continuing into 2024, which sounds promising. I reckon it could continue to gain market share.

Harshil Patel does not own shares in Yü Group.

The post Best AIM stocks to consider buying in April appeared first on The Motley Fool UK.

The good news is that landing these stocks is a very achievable goal. Here, I’ll explain what to look for. I’ll also highlight a UK stock that I think has the potential to be a 10-bagger in the future.

What to look for

If someone’s goal is to find a stock that can increase by this amount, there are several things to look for in a company.

The first thing is a strong ‘economic moat’. Ultimately, the business needs to be offering a product or service that other companies can’t easily replicate. This will help it protect its revenues and profits.

A good example here is London Stock Exchange Group. Had one bought this stock in 2011, it would have been a 10-bagger.

Next, look for a company with considerable growth potential. For a stock to jump tenfold, the chances are the company itself will have to experience substantial growth. It could help here to look for highly scalable companies. These can often be found in the Technology sector.

It could also help to look at smaller companies. Generally speaking, it’s much easier for a smaller company to grow substantially than it is for a larger one.

A great example here is dotDigital. It’s a small UK software business. Had one invested here in 2011, they would have generated returns of 10 times.

Another factor that can help identify 10-baggers is return on capital employed (ROCE). This is a key measure of profitability. And it can provide clues into a company’s ability to compound its profits and grow bigger. For example, a company with a ROCE of 25 is going to grow much faster than a business with a ROCE of 7.

An example of a company with a high ROCE is InterContinental Hotels. Over the long term, it has generated strong returns.

Leadership is another factor to consider. Often, companies that are 10-baggers have visionary leaders. In many cases, they’re founder-led. Examples here include Elon Musk at Tesla and Jensen Huang at Nvidia.

Finally, it’s worth paying attention to valuation. If one pays an excessive valuation for a stock, it will be harder to generate 10x returns.

My stock idea

As for my 10-bagger idea, it’s Cerillion (LSE: CER). It’s a small UK technology company that specialises in back-office software.

This company meets just about all the criteria I mentioned above. For starters, it’s a small company with a market cap of just £470m.

Secondly, as a software company, it’s very scalable. Over the last five years, revenue has risen 125%. It’s also very profitable. Over this period, ROCE has averaged 26%.

Third, it has strong competitive advantages. For example, it has industry-leading products that have been recognised by Gartner.

Finally, it has top leadership. CEO Louis Hall is the founder of the company, having led the management buyout of the original business in 1999.

One negative here is that the stock is a little expensive right now. Currently, the P/E ratio is about 30. This valuation could act as a hindrance in the pursuit of 10 times returns.

Overall though, I think this company has what it takes to be a 10-bagger in the long run.

The post How to find 10-baggers (10x returns) in the stock market appeared first on The Motley Fool UK.

Here, I’m going to highlight three top AIM stocks for investors to consider for 2024. All three of these businesses are already profitable (which significantly reduces risk) and look set for strong growth in the years ahead.

Cerillion

First up is Cerillion (LSE: CER). It’s a fast-growing technology company that specialises in back-office software for telecoms companies.

This company has been a phenomenal investment in recent years. Thanks to strong sales growth, its share price has more than tripled over the last three years.

I think there’s plenty more to come from the company, however.

In a recent update, CEO Lewis Hall said that the market backdrop remains “extremely favourable”.

“In a slower growth environment for telcos, the need to extract more revenue from existing assets and improve operational efficiency are just as important drivers for improving or replacing the enterprise software layer as investment in new 5G and fibre infrastructure,” he noted.

The downside to this stock is that it has a high valuation. Currently, the forward-looking price-to-earnings ratio — or P/E ratio — is about 30. This adds risk.

If the company can continue to generate strong growth, however, I think the stock is likely to keep rising.

Keyword Studios

Next we have Keywords Studios (LSE:KWS). It’s a leading provider of technical and creative services to the video game industry.

Keywords Studios has a great track record when it comes to growth.

However, recently, it has seen its share price plummet on the back of concerns that artificial intelligence (AI) could disrupt its business model.

I do see AI as a risk here. Generative AI can do some amazing things these days.

That said, I think the stock is oversold.

Recent results showed that the company is still growing at a healthy rate (10% organic revenue growth for the six-month period to 30 June).

And management said it was excited about the opportunities that lie ahead.

With the shares currently trading on a P/E ratio of just 13, I think the risk/reward proposition is compelling heading into 2024.

Alpha International

Finally, the third AIM stock I want to highlight – and it may not be an AIM stock for much longer – is Alpha International (LSE: ALPH). It’s an up-and-coming financial services company that specialises in foreign exchange risk management and payments solutions.

Successful investing is often about backing visionary leaders (just ask anyone who invested in Tesla a decade ago). And that’s one reason I like this company.

In recent years, founder and CEO Morgan Tillbrook has done an immense job of growing this business (five-year revenue growth of 630%). And with Tillbrook at the helm, I expect the firm to keep growing.

Another reason I’m bullish here, however, is that the company is planning to move from AIM to London Stock Exchange’s main market in 2024. I think this could increase interest in the stock.

This one has historically been very expensive. Yet recently, the P/E ratio has come down below 20.

That’s still not cheap, meaning there’s valuation risk. However, I think it’s an attractive valuation for this fast-growing business.

The post 3 magnificent AIM stocks to consider buying for 2024 appeared first on The Motley Fool UK.

The company has been delivering mission-critical software for billing, charging and customer relationship management for around 24 years. During that time, it mainly served the telecommunications sector but also provides for companies in the utility and financial services sectors. 

Prior to being a standalone business, Carillion was part of Logica plc (acquired by others since). But current chief executive Louis Hall led a management buyout in 1999. And the company joined the FTSE AIM market in 2016.

A quality AIM opportunity

But I’m not letting that put me off! Not all businesses on AIM are rubbish. And Cerillion stands out as a top performer with a racy valuation to match. It’s a somewhat rare growth and quality opportunity on the AIM market. But is it a stock to buy now?

There’s no doubt that the valuation looks expensive. With the share price near 1,302p, the forward-looking earnings multiple for the current trading year to September 2024 is just above 28.

That’s set against City analysts’ expectations of a mid-single-digit percentage increase in earnings. So at first glance, the stock looks expensive. However, I’m not letting that put me off either. Historically, some of the best-performing stocks on the market have started big uptrends from high-looking valuations.

However, there’s no denying a high valuation can add risks for new shareholders. If a growth company misses it estimates, the market’s verdict can be brutal and a crashing share price can follow.

But Cerillion delivered some robust figure in its full-year report on Monday (20 November). And Hall spoke of “another year of strong growth and development”. Revenue, pre-tax profit, and the new customer sales pipeline all reached new highs. 

Around 79% of total revenue came from existing customers. But the company also closed a new €12.4m deal with a top telecommunications company demonstrating “widening market appeal”.  

Embracing artificial intelligence

In a sign of the times, the business introduced artificial intelligence (AI) into its products for the first time. And that evolution could enhance ongoing growth potential for the coming years.

Looking ahead, Hall said the market backdrop for the business is “extremely” favourable. In the current slower growth environment for telecoms companies, there’s a need to extract more revenue from existing assets and improve operational efficiency. 

That situation plays into Cerillion’s hands. It’s a strong driver for firms to improve or replace their enterprise software, perhaps as investment in new 5G and fibre infrastructure.

There’s a net cash position on the balance sheet. And increasing recurring revenue supports ongoing cash flow. Meanwhile, the happy financial situation looks set to continue with a “record” back-order book and a “strong” new customer sales pipeline.

It’s instructive to see the share price hardly budging on results day. 

Immediate earnings growth may not punch the lights out, but investors seem satisfied with the financial situation here.

Hall is “confident” about Cerillion’s multi-year growth prospects. And I see the high rating as a quality mark, despite the risks.

On balance, Cerillion looks well worth further research and consideration for a diversified portfolio now.

The post Is this a rare UK stock to buy for growth and quality right now? appeared first on The Motley Fool UK.

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.

The post 2 AIM growth stocks to consider buying for 2024 appeared first on The Motley Fool UK.

Advanced Medical Solutions

What it does: AMS designs, develops, and manufactures innovative tissue-healing technology and wound-care.

By Dr James Fox. I bought Advanced Medical Solutions Group (LSE:AMS) shares a few weeks ago, and while I was buying for the long run, they’ve been good to me so far. At the time of writing, the stock is up 7% since purchase.

It’s a medium-sized business with a track record of delivering strong cash flows and has a competitive advantage in its specialised medical products. It also operates in a highly resilient sector – namely healthcare. Moreover, given the elective procedure backlog, demand should be strong.

The Cheshire-based firm has a reputation for healthcare innovation, and this will likely be enhanced by the launch of LiquiBandFix8. The hernia surgery product was granted pre-market approval ahead of schedule and is now in the partner selection phase.

US LiquiBand sales fell in the first half of the year, and that’s a concern, but the company says partner negotiations are progressing well. Hopefully this will contribute to an uptick in sales and overall revenue in the second half.

James Fox owns shares in Advanced Medical Solutions.

Barclays 

What it does: Barclays is an international bank with operations including retail and investment banking.  

By Charlie Keough. I recently opened a small position in Barclays (LSE: BARC). The stock has struggled year to date, down around 8% as I write. However, I’m optimistic. 

First of all, it offers a dividend yield of over 5%, which should be well covered by earnings. Its half-year results also saw its interim dividend increase, while a new share buyback scheme of £750m was launched.

On top of this, its shares also trade on a price-to-earnings ratio of just 4.3.  

Barclays also has an edge over some of its competitors with its balance between tight-knit risk management versus global opportunities, in my opinion.  

And in the years ahead, banks should bounce back when interest rates begin to come down again closer to the 2-3% range.  

Global economic uncertainty and volatility surrounding the banking sector could damage the share price. After all, the turmoil we saw earlier this year saw the stock hit a 52-week low.  

However, as a long-term buy, I think Barclays shares are a smart move.  

Charlie Keough owns shares in Barclays.  

Cerillion

What it does: Cerillion is a software business that provides billing, charging, and customer relationship management (CRM) solutions, predominantly to telecoms firms.

By Edward Sheldon, CFA. Cerillion (LSE: CER) shares recently experienced a pullback and I took the opportunity to boost my holding in the software company.

This is one of my favourite stocks on the UK’s Alternative Investment Market (AIM). For starters, the company is growing at a rapid rate. Over the last five financial years, revenue has more than doubled as businesses have embraced Cerillion’s software solutions. For the year ending 30 September 2023, analysts expect top-line growth of 17%.

Meanwhile, its financials are strong. Return on capital (a key measure of profitability) is high and there’s no debt on the balance sheet. As for the dividend payout, it’s growing at a very fast pace (the H1 payout was hiked by 27%).  

The downside to buying these shares is that its valuation is relatively high. Currently, the forward-looking price-to-earnings (P/E) ratio is a little over 30, which doesn’t leave much room for error.

I’m comfortable with this valuation, however, given the company’s growth track record and superb financials.  

Edward Sheldon owns shares in Cerillion

EOG Resources

What it does: EOG Resources develops, produces, and markets crude oil and natural gas liquids, primarily in New Mexico and Texas.

By Gordon Best. I’ve been buying shares in EOG Resources (NYSE:EOG) recently. 

After the energy sector soared in 2022 amid geopolitical uncertainty, the sector has been the worst performing of the S&P 500. However, the price of crude oil has started to rebound, indicating a potential buying opportunity. EOG Resources has always been a favourite of mine, with a price-to-earnings (P/E) ratio of 8.1 times well below the sector average of 13.2 times. 

A notable risk is how cyclical the energy sector can be, amid growing focus on clean energy. Negative sentiment or reduced demand would impact the share price. However, through economic uncertainty, oil demand is likely to be high, and with large cash reserves, the company is well positioned to perform decently regardless.

With a generous dividend of 5.6%, and a strong track record of growth, I see EOG Resources as a solid defensive investment for my portfolio. 

Gordon Best own shares in EOG Resources.

Glencore

What it does: Glencore is a leading global producer of metals and minerals, and also makes money from commodity trading and arbitrage.

By Harvey Jones. My portfolio is light on commodity stocks so when I saw Glencore (LSE:GLEN) shares had dipped 20% in a matter of months, I jumped at the chance to buy on 26 July. I’ve had a bumpy ride so far, although I expected that. This sector is more volatile than most.

Investors have been spooked by signs of disinflation in China while the US could still fall into recession, hitting commodity demand and prices.

On Tuesday, Glencore reported that first-half earnings had halved to £9.9bn, due to weaker commodity and energy prices. Management also blamed “inflation, tighter monetary conditions and limited global economic growth”.

Despite that, I’m happy with my purchase. The stock looks good value trading at 9.5 times forecast earnings and is still expected to yield 7.91% this year and 6.68% in 2024.

Since I’m aiming to hold for a minimum of 10 years and ideally longer, I can ignore short-term bumpiness and allow time for my dividends and share price growth to compound.

Harvey Jones owns shares in Glencore.

Lloyds

What it does: Lloyds is the UK’s largest mortgage provider. It’s also one of the nation’s biggest banks with over 30m customers.

By John Choong: With the Lloyds (LSE:LLOY) share price sinking below 50p recently, I’ve been steadily buying up shares of this leading UK bank. While headline results disappointed some investors, causing the sell-off, I focused on the fundamentals instead.

Rather than reacting to short-term noise, I’m taking a longer-term outlook. After all, management upgraded guidance despite economic uncertainty, with its dividend jumping 15% as well. Bearish views seem to overlook Lloyds’ strong outlook too, as I expect net income to jump as structural hedges take effect in H2, with cost-cutting benefits expected to provide a tailwind.

Trading below tangible book value as well, Lloyds shares offer deep value versus peers as the bank has room to expand margins through fee income and digital offerings. While some fret over near-term headwinds, I’ve been opportunistically buying Lloyds stock on weakness. The future looks bright for this stable UK bank once the clouds clear.

John Choong has positions in Lloyds

Mastercard

What it does: Mastercard is a payment processing company enabling consumers and businesses to complete electronic payments.

By Zaven Boyrazian. While the ongoing cost-of-living crisis continues to put pressure on families, the economic landscape has started to improve both in the UK and internationally. Consumer spending is slowly recovering as inflation begins to cool off. And it’s allowed payment processing giants like Mastercard (NYSE:MA) to enjoy some impressive transaction volumes.

Looking at its latest results, a total of $2.3trn (£1.8trn) moved through Mastercard’s payment network between April and June this year. And that’s up from $2.1trn (£1.7trn) just three months prior.

By charging small fees on each transaction, the company has bolstered its revenue and earnings by double-digits. And while it’s fiercely fighting for market share against the likes of Visa, Mastercard continues to consistently beat analyst expectations.

Future growth prospects are strongly tied to the Asian and African markets, which may be difficult to penetrate. Nevertheless, I remain optimistic about the long-term potential of this enterprise, and bought the shares recently.

Zaven Boyrazian owns shares in Mastercard.

Ramsdens Holdings

What it does: Ramsdens Holdings is a financial services group that offers foreign currency exchange, pawnbroking loans, and the buying and selling of jewellery.

By Ben McPoland. I’ve recently started a position in Ramsdens Holdings (LSE: RFX). This is a penny stock with a market capitalisation of just £70m, so high volatility is an unavoidable risk here.

Nevertheless, there are a number of things I like about this company. One is its diversified offerings, which range from jewellery retail and pawnbroking to foreign currency exchange.

Pawnbrokers tend to do well when consumer incomes come under pressure, and that’s no different during the current cost-of-living crisis. The firm is posting record revenue and operating profits across the full business.

Second, the stock carries a 4.3% dividend yield covered 2.5 times by trailing 12-months earnings. It just hiked the half-year dividend by 22%.  

Finally, the stock trades on a cheap P/E multiple of 9.2. That’s attractive because earnings growth is set to continue as Ramsdens adds to its 158 stores around the UK. Its online offering is also growing rapidly and the company intends to consolidate the highly fragmented market in which it is thriving.

Ben McPoland owns shares in Ramsdens Holdings.

Ten Entertainment

What it does: Ten Entertainment operates a network of bowling alleys around the UK, which also offer a range of other entertainment options.

By Roland Head. Ten Entertainment (LSE: TEG) has recovered strongly from the pandemic and recently reported half-year sales 57% above pre-Covid levels.

The business is continuing to expand and expects to open at least four new centres in 2023, taking its total estate to more than 50 centres.

The firm’s more recent accounts show attractive double-digit profit margins and strong cash generation. Ten Entertainment has no debt other than lease liabilities.

There’s obviously some risk of a slowdown in consumer demand if the UK suffers a recession. Growth could become a challenge, too — I don’t know how many more centres the firm will be able to open.

However, Ten Entertainment’s offering is relatively affordable and appeals to a broad market. The company’s shares look decent value to me too, trading on just nine times forecast earnings, with a 4.1% dividend yield.

I think the stock could deliver a decent return from current levels.

Roland Head owns shares in Ten Entertainment.

The post 9 shares that Fools have been buying! appeared first on The Motley Fool UK.

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Bioventix

What it does: Bioventix develops and supplies high-affinity monoclonal antibodies for use in clinical diagnostics

By Paul Summers: AIM isn’t known for being overburdened with quality companies. However, one clear example is Bioventix (LSE: BVXP). 

This biotech firm consistently generates astonishing margins. In fact, Bioventix is arguably one of the best companies in the UK based on this metric.

Recent trading has been reassuringly solid too. Pre-tax profit jumped 27% to £4.5m in its last set of interim results.

Throw in a rock-solid balance sheet and an enviable position in its niche market and there’s a lot to like.

Unfortunately, the shares currently change hands for almost 26 times forecast earnings. That’s fairly rich even when investor sentiment is high, let alone during a period of economic strife.

This could prove problematic if, for whatever reason, the firm issues a less-than-encouraging update.

Then again, you tend to get what you pay for. I doubt Bioventix stock will ever be available for a bargain-basement price.

Paul Summers has no position in Bioventix.

Cerillion

What it does: Cerillion is a software business that provides billing, charging, and customer relationship management (CRM) solutions, predominantly to telecoms firms.

By Edward Sheldon, CFA. There are three main reasons I’ve selected Cerillion (LSE: CER) as my top AIM stock this month.

The first is that the company has a lot of momentum right now. For the six-month period to the end of March, it posted revenue of £20.5m, up 27% year on year, and adjusted earnings per share of 25.5p, up 37%.

The second is that the company just raised its interim dividend by a whopping 27% to 3.3p per share. This suggests to me that management is very confident about the future.

The third reason is that it has positive share price momentum. This is a stock that is in a very strong uptrend right now. I’d much rather buy a stock that is trending up than one that’s trending down.

Now, it’s worth noting that Cerillion does have a high valuation. Currently, the forward-looking P/E ratio here is in the low 30s. I’m comfortable with the valuation given the strong growth here. However, it does add some risk.

Edward Sheldon owns shares in Cerillion.

Creo Medical  

What it does: Creo Medical is a medial devices company that manufactures instruments used in endoscopic surgery.   

By Ben McPoland. Creo Medical (LSE: CREO) is an intriguing AIM stock. Its flagship Speedboat Inject product is a multimodal instrument designed for flexible endoscopy. Instead of being just a long, camera-mounted tube looking inside a patient’s body, this product is more like a high-tech Swiss army knife. It can dissect, cut out, inject and coagulate all in a single device.

This makes procedures far less invasive, potentially turning hospital stays into routine one-day visits. Indeed, Creo estimates that its Speedboat device saves the NHS £5,000 per procedure. More clinicians around the globe are now being trained on its suite of electrosurgical products.

Furthermore, its instruments are powered by an advanced – and patented – energy system. And it is already licensing its technology out to other firms, including robotics giant Intuitive Surgical. 

The company recently raised over £33m to fund its growth, and management expects this will be sufficient to reach positive cash flow by 2025.

Though there’s a risk that doesn’t happen, I’m backing Creo to become a much larger company.

Ben McPoland owns shares in Creo Medical and Intuitive Surgical.

Michelmersh Brick Holdings

What it does: Michelmersh is a premium brick manufacturer that owns brands including Blockleys, Carlton and Hathern Terra Cotta.

By Roland Head. My top AIM stock right now is Michelmersh Brick Holdings (LSE: MBH). Shares in this specialist firm have fallen by a third from their 2021 highs. I think they look excellent value on a medium-term view.

The main risk facing the business is that the housing slump will be more severe than expected, perhaps alongside a UK recession. A wider construction downturn could also be problematic.

Michelmersh’s valuation could become more depressed in this scenario. But I think the company’s portfolio of distinctive brands and £10m net cash balance mean that it will ride out any short-term headwinds and return to profitable growth.

I’m also reassured by the combined 28% shareholding of co-founders Eric Gadsden and Martin Warner, who remains chairman.

The stock currently trades on around nine time forecast earnings with a 4% dividend yield. If I didn’t already own shares in a housebuilder, I’d be buying at this level.

Roland Head does not own shares in Michelmersh Brick Holdings.

The post Best AIM stocks to buy in July appeared first on The Motley Fool UK.

A rising star

The company in focus today is Cerillion (LSE: CER). It’s a software business that provides billing, charging, and customer relationship management (CRM) solutions, predominantly to telecoms firms.

Founded in 1999, it has a market cap of around £400m at present.

Strong growth

One reason I’m bullish here is that the company is generating strong growth as telecoms businesses shift their operations to the cloud.

For the six-month period to the end of March, it posted:

• Revenue of £20.5m, up 27% year on year
• Annualised recurring revenue of £13.1m, up 34%
• Adjusted earnings per share of 25.5p, up 37%
• A dividend of 3.3p, up 27%

Clearly, the business is performing really well right now.

And management appears to be confident about the future.

“With a strong new customer sales pipeline, which includes advanced-stage contract discussions with certain potential new customers, as well as healthy demand from existing customers, we expect continuing strong growth ahead,” said CEO Louis Hall in the company’s H1 results.

It’s worth noting here that Cerillion was recently included in two Gartner market guide reports. Management believes that the inclusion in these reports highlights the company’s growing reputation as well as the breadth of its product portfolio.

Superb financials

The company also has a good track record.

In recent years, return on capital employed – a key measure of profitability – has risen dramatically. Last year, it hit 34%. Companies that can consistently generate high returns on capital tend to be good long-term investments.

As for the balance sheet, it’s strong. At the end of March, Cerillion had net cash of £23.6m on its books and no debt.

The company’s robust balance sheet, which carries no debt, and the increasing level of recurring income, provide a strong underpinning for the business as it continues to grow and develop. The board views near and mid-term growth prospects very positively.

CEO Louis Hall

Rising share price

Another thing I like about this stock is that the share price is in a powerful upward trend at the moment.

And what’s interesting is that when tech shares fell last year, Cerillion actually bucked the trend and posted gains (+36%) for the year. So, the stock doesn’t appear to have a strong correlation to the tech sector that can be very volatile.

Valuation

Now, one downside to this stock is that its valuation is relatively high.

Currently, it sports a forward-looking price-to-earnings (P/E) ratio of about 30 using the next financial year’s (ending 30 September 2024) earnings forecast of 44.5p per share.

This adds risk. If growth slows, I’d expect the shares to be hit.

I’m comfortable with the valuation, however. This is a high-quality company that’s growing at a fast pace and looks set to increase its earnings in the years ahead.

I’m invested here and I plan to hold the shares for the long term.

The post 1 of the best AIM shares for investors to buy in 2023 appeared first on The Motley Fool UK.