Throughout the Covid-19 crisis, the financial headlines have all been banging on about the FTSE 100. But what if you’re not attracted by the UK’s biggest companies, and you’re looking for some hot growth stocks to boost your profits? I’ve been taking a look at the Alternative Investment Market (AIM).
Traditionally, the FTSE 250 has been the index of choice for investors looking for companies with growth potential, with the FTSE 100 typically seen as providing dividend income. But how well could you have done by searching AIM for explosive growth stocks?
Some AIM stocks have been among our biggest winners in recent years. Unlike the main FTSE indices, there are no market capitalisation limits. So companies can grow massively while remaining on the same index and enjoying lighter regulation and lower costs. Let’s look at a few stunning AIM performances in recent years.
FTSE 100 size
I’m sure you’ve heard of ASOS. The ASOS share price has been through some terrifying booms and busts in its existence. But even though ASOS shares are now trading at less than half of their 2018 peak, they’re still up more than 14,000% in less than 20 years. Today, with a market capitalisation of £3.5bn, ASOS would be close to making the FTSE 100 if it entered the main market.
That other high-profile online fashion retailer, Boohoo, has seen its shares climb by 470% since flotation. That might not sound quite as impressive, but it is in only a little over six years. And with a market cap of more than £5bn, Boohoo is already within FTSE 100 territory should it ever choose to quit AIM.
Remember the meteoric rise of Fevertree Drinks? It’s way down from its peak, but still up 1,200% since flotation. And yes, Fevertree is another AIM champion.
AIM’s success
The London Stock Exchange likes to boast about AIM’s success. About the number of companies it has attracted, and the huge sums they’ve been able to raise from investors. And thinking of the big successes I’ve mentioned, you might think AIM has been good for investors too.
But not all high-profile AIM stocks have hit the high life. In fact, only very few have ever made it close to FTSE 100 level market caps. Take Purplebricks, which thought success could be bought through TV advertising. The Purplebricks share price soared, but then it crashed. And those who bought at flotation and held on have lost 50% of their money.
Due to its relatively lax regulations, AIM has attracted companies with less than sparkling business ethics too. I won’t name any here, but enough have attracted regulatory investigations and been found to be behaving badly for it to be a significant concern.
AIM vs FTSE 100
Sadly, AIM has actually not performed well at all for investors over its lifetime. Since inception at the end of 1995, AIM is down 14%. Even the FTSE 100 has been a better index for growth in that time, with a 65% gain. And the FTSE 250 is up 320%.
So yes, AIM can be a fertile ground for finding the occasional stunning success. But overall, AIM has performed like an index of dross. If you want to track a growth index, the FTSE 250 looks a much better bet.