If you think the FTSE 100 and FTSE 250 have had a challenging 2022 so far, spare a thought for those invested in the AIM-All Share market. It’s tumbled by almost a quarter in value. Personally, this fires up my contrarian instincts. So, is now the perfect time to go hunting for AIM stocks?
AIM stocks: not for the faint-hearted
Well, it’s probably best to start on a cautionary note.
AIM (the Alternative Investment Market) has a reputation for being the ‘Wild West’ of UK investing. And up to a point, this is justified. Thanks to more relaxed regulations, it’s attracted its fair share of questionable businesses — most notably from the oil, mining and biotech spaces — over the years. Even many of those that were run appropriately failed to deliver the returns investors thought they would.
AIM stocks also tend to be fairly young companies that list with the intention of raising cash to fund growth. While there’s nothing wrong with this, it does mean that investors might have more limited information and data from which to make a decision to buy stock.
Having stated the above, I do believe that the junior market has come on in leaps and bounds over the years. Moreover, there are most definitely a few diamonds in the rough.
Great stocks
I think Fevertree is a good example of a quality AIM stock, albeit one that’s lost its fizz. Down almost two-thirds in value in 2022 alone, the former market darling has been struggling with supply chain problems and rising glass costs. Profit forecasts have been drastically cut.
Fast-fashion purveyor boohoo is another company whose valuation has tumbled. Like Fevertree, online clothing retailers have seen their slim margins reduced. The higher cost of living has impacted discretionary income and returns have soared. The Manchester-based business also continues to attract the wrong sort of headlines over its ESG (Environmental, Social and Governance) credentials.
But I still think there’s a lot to like here. Both Fevertree and boohoo have sufficiently solid financial positions, marketing savvy and a lot of room to grow. Perhaps most interestingly, management at the former has been dipping their hands in their pockets and buying up stock. If that doesn’t suggest that they’re confident of a recovery, I don’t know what does.
A word of warning
Of course, I could be utterly, hopelessly wrong. The tough times could continue for some time, greatly impacting the ability of these AIM stocks to bounce back to form. Both face strong competition, neither are cheap to buy and only one (Fevertree) pays a dividend. All this could keep more cautious investors away.
As someone already invested in one of these companies, a slow recovery, if it comes at all, would hinder my pursuit of financial independence. However, it would hurt a lot more if I didn’t hold a diversified portfolio.
Thankfully, I do.
Good but not perfect
AIM stocks have the potential to rapidly change my wealth and, consequently, my life. So yes, I do think now might be a good — albeit not necessarily perfect — time to go hunting in this part of the UK market.
Even so, it’s still vital for me to invest according to my personal risk tolerance. Therefore, I’ll be confining my wishlist to only those that are already generating profits.
