Could AIM Stars ASOS Plc, Telit Communications Plc And Hutchison China MediTech Limited Fund Your Retirement?

Has the City overlooked a slew of small cap winners with ASOS Plc (LON: ASC), Telit Communications Plc (LON: TCM) & Hutchison China MediTech Limited (LON: HCM)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The AIM may be widely regarded as the Wild West of investing, but growth-seekers shouldn’t dismiss these shares out of hand. Although there have certainly been massive flops, shares of companies such as fast fashion retailer ASOS (LSE: ASC), pharmaceuticals maker Hutchison China MediTech (LSE: HCM) and telecoms device specialist Telit Communications (LSE: TCM) have outperformed the FTSE 100 by 769%, 833% and 44%, respectively since their IPOs. The question becomes whether these companies can keep up this pace. If they can, investors’ retirements could be looking considerably more comfortable.

In fashion

ASOS has certainly been one of the most famous AIM shares of recent years and with good reason. The online-only fast fashion retailer has carved a significant niche for itself with young shoppers. The company has taken advantage of its strong social media presence to grow revenue by leaps and bounds, with sales up a whopping 23% in the past quarter alone.

This revenue growth hasn’t turned into bumper profits because of its meagre operating margins of 4.1%. Management’s answer to this has been to bring other brands on board to the website and social media accounts, a smart move to diversify revenue.

However, I remain doubtful the company can continue living up to the high expectations it has set itself. Shares may have halved from their 2014 peak but they still trade at an astronomical 58 times forward earnings. I don’t believe its core business of low-end fast fashion will ever offer sufficient pricing power to increase profits enough to meet this sky-high valuation.

Risks and rewards

Internet of Things (IoT) device maker Telit Communications is another former high flyer whose shares have come back down to earth recently. The IoT market, which connects devices as varied as refrigerators and cars to the internet, is expected to continue growing nearly exponentially. But investors are increasingly worried that relative minnow Telit will be squeezed out by larger competitors.

This is a very valid concern, and I believe the future for Telit will hinge on its services division. The support services it offers to small companies allows them to embed IoT devices in their products, and Telit will work with them to sift through and utilise the massive amounts of data produced. Sales in the services division grew by 30% last year, but still remain a small portion of overall revenues. If the company can continue to capitalise on this success, its shares may be quite cheap at 13 times forward earnings.

Set for the big time?

Hutchison China MediTech is attempting to take advantage of China’s prodigious output of highly-educated scientists to create the country’s own homegrown global pharma giant. The company, which is controlled by Hong Kong conglomerate CK Hutchison, has so far funded high R&D costs by creating a cross-country sales network for outside prescription drugs. This strategy has paid off so far with revenue growing by 104% last year alone as the in-house innovation division begins to add to the bottom line.

The company is aiming for 25 clinical trials by mid 2016 and could send its first drug for US approval as early as later this year. And, its agreements with major global brands such as AstraZeneca and Eli Lilly bring in significant revenue each time a drug makes it to the next stage of development. If any of these myriad drugs pay off big time, shareholders could be in for great returns.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ian Pierce has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

If I’d invested £5,000 in a Nasdaq index fund 5 years ago, here’s how much I’d have now

The Nasdaq index keeps hitting new all-time records in 2024, as US tech stocks fly. How much could I have…

Read more »

A senior group of friends enjoying rowing on the River Derwent
Investing Articles

£500 to invest a month? Consider aiming to turn that into a £20,000 passive income like this!

With a regular monthly investment, it's possible to build a large and steady passive income for retirement. Royston Wild explains.

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Investing Articles

As retirement needs soar 60%, here’s how I’m building wealth with UK shares

A regular investment in UK shares and funds could help Brits create a large and lasting pension. Our writer Royston…

Read more »

Investing Articles

I’d buy Games Workshop shares before they reach the FTSE 100!

Games Workshop shares look likely to join the FTSE 100 soon. Here’s why I think investors should consider buying the…

Read more »

Businesswoman calculating finances in an office
Investing Articles

Could me buying this stock with a $2.5bn market-cap be like investing in Tesla in 2010?

Archer Aviation (NASDAQ:ACHR) stock's nearly doubled so far in November. Could this start-up be another Tesla in the making?

Read more »

Investing Articles

5,000 shares of this UK dividend stock could net me £1,700 a month in passive income

Our writer calculates the passive income he could earn from holding a significant number of shares in this powerful dividend-paying…

Read more »

Investing Articles

9.3%+ yields! 3 FTSE 100 dividend giants to consider buying

Our writer examines a trio of high-yield FTSE 100 shares and explains some of the opportunities and risks he sees…

Read more »

Investing Articles

As the Kingfisher share price drops on Budget fallout, should I buy?

The Kingfisher share price was on a strong 2024 run until the DIY group warned us of the possible effects…

Read more »