The FTSE AIM 100 index is home to a range of listed companies that have profited handsomely throughout the pandemic. It also happens to be the place where I like to hunt for the best UK stocks to buy and hold for the long term.
Just look at the likes of ASOS, Naked Wines and ITM Power. All three have experienced monumental share price growth over the last few years. With that in mind, I’m going to discuss two AIM-listed shares that I think are among the best I could buy for my long-term investment portfolio in 2021.
Operating in an industry with a bright future
First up on my watchlist is video game services company Keywords Studios (LSE: KWS). Operating in one of the few industries to have benefited from widespread lockdown restrictions, the company has profited from the increase in demand for gaming content.
Last month, Keywords outlined how it expects a 14.2% increase in full-year revenues. Furthermore, underlying profit before tax looks set to rise 34.5% year-on-year. Both figures are slightly ahead of previous guidance, demonstrating a stellar business performance.
That said, the company’s shares come with a significant price tag. A forward P/E ratio of around 63 means it will need to deliver exceptional earnings growth. That’s if it’s to deliver a respectable return to investors. To me, that represents an extremely difficult task and certainly constitutes a tangible risk looking into the future.
Furthermore, Keywords services are substantially labour-intensive, meaning margins will remain a concern. If weaker margins happened to feed through to weaker cash flows, the company’s finances could come under significant pressure.
However, with the recent launch of next generation games consoles (PlayStation 5 and Xbox X series) expected to boost demand over the coming years, I think Keywords looks set to continue its momentum moving forward.
Not to mention the group’s savvy acquisitions strategy, which has been a major driver of growth in previous years. If the company can continue hoovering up businesses at reasonable valuations, I’m confident it should significantly add to its ability to meet new content demand over the coming years.
Making the most of the demand for digital privacy
The innovative AIM-listed Kape Technologies (LSE: KAPE) is well placed to meet the rising threat of cyber attacks. The digital security software provider focuses on protecting consumers and their personal data through a subscription-based platform.
Kape has a solid record of revenues and earnings growth over the previous few years and operates a strong business model that has the potential to capitalise on a mammoth market for digital privacy. To illustrate, full-year revenue in 2020 is expected to be up a staggering 85% year-on-year.
However, despite my optimism, there are several risks to watch out for over the coming years. Perhaps most significantly, the group’s subscription-based business model will rely on strong customer retention rates. Not to mention the ability to increase the customer base.
To do this, the group must ensure its service provision remains of exceptionally high quality. That’s particular the case as it seeks to expand operations further. Nevertheless, Kape appears to be successfully consolidating its place in the consumer privacy and security market.
Ultimately, with the company stating it’s now well-positioned to become a “go-to multi-product consumer cybersecurity vendor”, I’m excited to see what the future holds.