What are the top AIM stocks to watch?

AIM was launched by the London Stock Exchange (LSE) in 1995, starting life with just 10 companies worth £82 million. Since then, over 3600 businesses have graced AIM and raised almost £113 billion from investors. The companies listed on AIM – from both the UK and abroad – make a significant impact on the UK economy, contributing over £15 billion in annual gross domestic product (GDP), more than some of the country’s biggest industries such as aerospace, automotive, defence or pharmaceuticals.

• Why do companies list on AIM?
• Are AIM stocks a good investment?
• How to invest in AIM
• Top AIM stocks to watch in 2019
• Top 100 AIM stocks

Why do companies list on AIM?

'AIM is the most successful growth market in the world' – LSE.

AIM is designed for small and medium sized businesses that wish to list their company on a stock exchange but are not yet ready for a full traditional listing. The main reason businesses choose to go public on AIM is because they need capital to grow, and sourcing other finance can be difficult.

The number of AIM initial public offerings (IPOs) has been in decline over the last two years. Still, seven companies have joined the market in the first nine months of 2019, raising over £371 million, while existing listings have raised a further £2.36 billion. In 2018, 52 new companies joined AIM and raised £1.6 billion, with existing companies raising a further £3.9 billion. The peak year for IPOs was in 2005 when nearly 400 new companies joined the market, but it has remained below 100 per year ever since the financial crisis.

The market has proven its ability to provide the vital funding needed to nurture small businesses. The majority of funds raised on AIM is by companies that have already listed, demonstrating that firms are able to tap into vital liquidity even after they have conducted their IPO. Almost 795,000 trades were made on AIM-listed companies in September alone, trading 43.8 billion shares with a value of over £4.3 billion.

It also brings companies under a recognised regulatory and compliance framework that sets the standards for listed companies, which gives them higher recognition among investors and important institutions like banks and foreign lenders. However, while the regulatory regime is strict, it is designed to make it easy for new businesses to float on AIM; it does not require a business to be of a particular size (as is the case elsewhere), but instead requires a company to have a three-year operating history and the ability to demonstrate its worth.

Today, there are over 880 stocks listed on AIM with a combined value of £94.7 billion. Most businesses that list on AIM end up leaving for one reason or the other - some grow and take a step up to a bigger listing (such as on the Main Market) while some fail and collapse. Others get bought out by peers or are taken back under private control.

Are AIM stocks a good investment?

In a nutshell, AIM stocks offer both higher risk and higher reward for investors. Share prices can move by double digit percentages in a single day and it is not uncommon for a stock to pop higher or lower on a one announcement.

The attractiveness of the AIM market is the ability to invest in companies early on to help build the value of both the company and your investment over the longer term. Many highly successful companies and widely recognised names began their lives as public companies by listing on AIM before moving on to a traditional listing: Domino's Pizza Group, insurance provider Hiscox, self-storage firm Big Yellow Group and bookmaker GVC Holdings, to name a few. For example, investors could pick up GVC shares for less than 90p each back in 2007, when it was just launching its first sportsbook, but that had soared to £5 days after it joined the Main Market in early 2016. Today, GVC – the owner of Ladbrokes Coral - is a member of the FTSE 250 generating almost £3 billion in annual revenue.

It is important to stress that not all companies are successful and that many fail – often in spectacular fashion. Plus, volatility is much higher than larger stocks because AIM companies can be very sensitive to the slightest development. Winning or losing one contract can make or break many firms, and it is common to see companies completely revamp their strategies. Langbar International, a cash shell that joined AIM in 2003, saw shares jump from 10p to £10 just on the announcement of a new chief executive officer (CEO) being appointed but, just two years later, that same CEO was jailed for losing £370 million that had been stashed somewhere in Brazil. Investors that had backed Nigerian oil producer Afren are still fighting claims in court today after the firm collapsed under questionable circumstances back in 2015.

The accessibility and success of AIM means investors have an eclectic choice of stocks and sectors to pick from. There are stocks for investors looking to gain exposure in more traditional sectors such as banking, retail, construction and pharmaceuticals – areas often dominated by big and expensive stocks – as well as those seeking something with an edge, with companies working in diverse fields like public polling, video games and automation.

How to invest in AIM

You can choose to either invest or trade AIM stocks. With an IG share trading account, you can invest in shares for just £8 per trade. This goes down to just £5 if you make at least ten trades a month. When you invest, you buy the shares outright and are entitled to any dividends that are paid by the business.

To trade shares, whereby you can speculate on whether a stock’s share price will go higher or lower, you can use IG’s CFD service. Traders don’t own the shares outright or benefit from any dividends, but they can utilise leverage.

1. Decide whether you want to invest in stocks or trade them
2. Research the stocks you are interested in
3. Open an account with IG to gain access to over 12,000 international stocks, or try out a demo account to try out your strategy risk-free.
4. Make your first investment or place your first trade

Top AIM stocks to watch

5 largest AIM stocks

Boohoo

Boohoo was established in 1996 and has grown into one of the leading players in the online fashion industry. In addition to its core boohoo lines for both men and women, the company also owns a slew of other labels including PrettyLittleThing Nasty Gal, MissPap, Karen Millen and Coast. It distributes many of its products from two UK warehouses, with a particularly strong presence in the US, Europe and Australia.

Sales have leapt from less than £140 million four years ago to £857 million in the financial year to the end of February 2019. Annual sales growth in the last financial year was 48%. Continued strong growth has pushed Boohoo into the top spot on AIM in recent months, with shares up almost 20% over the last 12 months.

Fevertree Drinks

Fevertree Drinks, which produces premium mixers for alcoholic beverages, has been a soaring success since listing in 2014, having more than trebled in value since the middle of 2016. The company has triumphed off the back of the booming market for premium spirits, starting with gin and gradually moving to dark rum and others.

Fevertree is the most popular mixer brand in the UK’s off-trade market (supermarkets and stores) and it is still growing its position in on-trade (pubs and restaurants). The primary reason that Fevertree has been able to grow so quickly is because it largely outsources key operations like manufacturing, which means it does rely on partners and is more exposed to third-party risk.

Abcam

Abcam produces and sells protein research tools that are used by life scientists. These include antibodies, proteins and peptides, and research kits, which are utilised in a number of industries, including drug discovery, diagnostics and for basic research. The company is headquartered in Cambridge but has a presence in both the US and Asia. It claims there are around 750,000 life scientists in the world and that two-thirds of them use its products.

Abcam reported 11% annual growth in revenue in the year to the end of June 2019 to £260 million – double the amount it was making five years ago. It is aiming to grow revenue to £450 million to £500 million by the 2024 financial year.

ASOS

ASOS has been one of the biggest beneficiaries of the transition to online shopping that has left bricks-and-mortar retailers struggling. As it caters for 'fashion-loving 20-somethings’, it is in direct competition with Boohoo. The online fashion retailer has continued to deliver growth in its core UK market as well as expansionary geographies in the US and Europe.

However, sales growth is slowing across the board, its margins have also been under pressure, and pre-tax profit plunged 87% in the first half of 2019. ASOS remains one of the largest stocks on AIM even though shares have fallen by more than half over the past 12 months.

Hutchinson China MediTech

Hutchison China MediTech is a biopharmaceutical company pursuing treatments for oncology and immunological diseases. It currently generates revenue by manufacturing and distributing prescription drugs and other health products to consumers in China. It is majority-owned by CK Hutchison Holdings Limited, a conglomerate with annual sales of over $500 billion.

Last year was mixed for China MediTech. Revenue declined for the first time in years to $214.1 million from $241.2 million in 2017, with its pre-tax loss ballooning to $86.7 million from $53.5 million. Although it is hoping to secure regulatory approval for three of its new drugs over the next three years, research and development (R&D) is burning through cash at the moment.

Top 100 largest AIM stocks

Below is a list of the 100 largest stocks listed on AIM as of 3 October 2019. The table outlines the share price movement for each stock over the last 12 months, as well as the 12-month high and low to help demonstrate the volatility of each stock.

(Source: London Stock Exchange. Excludes six stocks that are traded in euros: Globalworth Real Estate Investments, Origin Enterprises, Greencoat Renewables, Summit Properties, Uniphar, and Eland Oil & Gas).