AIM companies continue to deliver “exceptional” growth, despite share price weakness across much of the index, and offer investors a compelling buying opportunity, according to Octopus Investments.
The firm’s inaugural growth barometer shows that since the market peak in late 2021, profits and earnings have progressed by nearly 60% on the FTSE AIM50 index. Despite this, the index has fallen in value by 37%, resulting in a price to earning valuation multiple decline of over 60% during the period.
Octopus Investments said that this means a “significant store of value” has emerged during the recent interest rate cycle, potentially providing investors with one of the most compelling buying opportunities of AIM listed companies since the 2008 financial crisis.
The barometer highlights that AIM is expected to deliver stronger earnings per share growth than the Nasdaq Composite Index and far in excess of the FTSE 100.
The prospective price-to-earnings (P/E) multiple for AIM is currently only 12.18x, less than half the multiple currently being attributed to Nasdaq on 26.34x and comparable to the FTSE 100 index on 11.9x.
It suggests that investors are paying more for earnings on the Nasdaq, even though some of those companies may not grow as quickly.
Moreover, on an EV/EBITDA basis, AIM looks more attractive than its competitors. Nasdaq is trading on 16.5x, the FTSE 100 is on 8.00x, whilst the FTSE AIM All Share is on only 6.08x, the data finds.
While AIM companies span a diverse range of sectors, Octopus Investments said non-energy minerals are leading the way on the profits front. This sector, which includes precious metals and construction materials, is expected to generate the largest share of total AIM profits this year at 20.47%.
The Barometer does point out that in recent years, as financial markets adapted to the higher interest rate environment, smaller companies have suffered a period of negative capital flows, and as a result, underperformance. This has also impacted AIM, which has also experienced structural issues.
However, with interest rates expected to continue to be cut globally over the coming periods, and if the Government were to make a stronger statement of support for publicly quoted companies, the Barometer argues that it would be reasonable to expect sentiment, and capital flows, to improve for smaller companies, benefitting AIM.
Richard Power, head of quoted companies at Octopus Investments, said: “The share prices of companies listed on AIM have suffered a difficult few years driven by negative fund flows. What this has masked is the exceptional earnings growth that AIM companies have continued to deliver, which this Growth Barometer has demonstrated.
“Smaller companies can adapt more quickly to changing market dynamics, and AIM continues to deliver superior earnings growth compared to Nasdaq. Once sentiment towards the UK improves, we believe this progress will be reflected in share prices offering investors the potential for significant upside from today’s depressed market levels.”
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