Warren Buffett once said: “Growth and value investing are joined at the hip.”
That is true but the trick is to know what you are looking for and seek stocks with the potential to grow and the Alternative Investment Market (AIM) could be the place to find them. Often compared to the Wild West, The London Stock Exchange’s junior market for growth companies, is not the place to buy without due diligence.
Its risks are real. Less than a quarter of the original companies listed there are still trading. However, if you examine company fundamentals, debt, profit and management, among some cowboys, you may find yourself a cash cow.
High altitude
Altitude Group (LSE:ALT) provides technology solutions to the promotional merchandise, marketing and print industries in the UK/North America.
The share price has mostly been on an upward trajectory this year. However, in May, it posted a pre-tax loss of £2.8m compared with a £125k profit the year before. It put 2018 losses down to increased operating costs in the US. But it has a low debt ratio of 0.25 and a strategic acquisition may be just what the company needs to propel its earnings.
Altitude purchased the Advertising Industry Mastermind Group in January for a total consideration of $5m. The purchase was part-funded by a January share placing that raised £9m (gross) and after acquisition, the subsidiary’s trading name changed to AIM Smarter.
The buy gave Altitude access to approximately 8% of the promotional products sector in its lucrative $23bn US market.
In the first 4.5 months of 2019, over 400 members contributed sales orders worth over $31m. This increased the average from $1m per week in March to over $2m per week in April (2018 averaged $383k per week) and AIM Smarter membership numbers grew by an additional 10%.
Last week, Altitude founder Martin Valery sold £2m shares but continues to retain 14.8% of the company. This understandably caused the share price to fall.
I am still inclined to see this share favourably because the company has confirmed 51 members upgraded to one of its new tiered packages between April and May and it has negotiated fees on sales placed with 149 affiliate suppliers.
Analysts forecast sales rising from £6.6m in 2018 to £19.8m this year and to £35.2m in 2020. But this is all purely speculative until Altitude confirms the revenues it’s receiving, so I see it as one for the watch list.
Wealth begets wealth
The Ten Lifestyle Group (LSE:TENG) share price has been steadily rising this year.
Ten sells worldwide concierge services to banks and wealthy individuals. Members use its platform to pre-book or purchase items such as restaurant reservations, holidays, tickets or treatments.
In May and June it secured new contracts with Revolut, China Merchants Bank and a global technology, media and telecom brand. The company expects these contracts to grow to be worth more than £2m each in the coming years.
Ten is not currently profitable and its share price is way off previous highs. Plus it has a book value worth only 23% of its current share price. Shareholders who purchased shares 18 months ago will still be nursing losses. Red flags? Maybe, but it has little debt, with a ratio of 0.27 and recent contract wins make me think this company has room for continued share price growth. Again, I am putting it on my watch list.