A word of warning – AIM is more lightly regulated than the main market and also contains some high-risk speculative stocks. Careful research is needed to find the hidden gems, but I’ve found it’s worth the effort. Here are seven AIM market stocks that I’d consider buying for my portfolio today.

Safer profits from property

My first choice is AIM property developer Watkin Jones (LSE: WJG). This company specialises in building student accommodation and apartment blocks, which it then sells to big rental landlords. New buildings are often pre-sold before they’re built, so the risk of losing money on completed projects is low.

The main fear I have is that this business could face much tougher competition in the future. Purpose-built rental accommodation is a growing market with some big money behind it. But Watkin Jones is an established player with a good reputation. I think it should continue to do well.

The shares have slumped recently, and this stock now offers one of the higher dividend yields on the AIM market, at around 3.9%. I think Watkin Jones looks good value at current levels.

A potential bargain

My second pick is tableware and home fragrance group Portmeirion (LSE: PMP). This business grew out of a gift shop in North Wales, but today owns brands including Spode, Royal Worcester and Wax Lyrical.

One potential concern for me is that if it continues to buy up other businesses, Portmeirion could lose focus on its core pottery business. This still generates the majority of profits.

However, Portmeirion’s latest results suggest to me that this isn’t a problem yet. The group’s 2021 profits were only slightly below 2019 levels and City analysts expect profits to hit record highs this year.

The shares currently trade on just eight times earnings and offer a 4% dividend yield. I’m tempted to buy at current levels.

Promising newcomer

Franchise Brands (LSE: FRAN) only floated on AIM in 2016 but is growing fast and looks promising to me. This group owns a range of franchised businesses, including drain specialist Metro Rod.

Management recent expanded into the US with the acquisition of Filta, which provides commercial kitchen maintenance services through a franchise network in the UK and US.

Franchise Brands’ shares aren’t cheap, on 21 times 2022 forecast earnings. If growth slows, then the shares could fall sharply. But progress so far has been good, in my view.

Annual profit has risen from under £2m in 2017 to more than £5m last year. Franchise Brands is one AIM growth stock I’d consider buying for my portfolio.

Nuclear specialist

I normally avoid buying shares in building contractors. But I think that Renew Holdings is a bit different. This business specialises in essential infrastructure such as rail, water and nuclear energy.

Most of these areas are heavily regulated. Unlike housing and commercial property, they do not usually suffer from cyclical booms and busts. I’m particularly interested in the exposure to nuclear energy, which I think could be a growth area as the UK moves away from coal and gas.

Renew has delivered steady growth in recent years, with profits rising from £12m in 2017 to more than £30m last year. So far, management has been able to manage material shortages and rising costs without any impact on trading, we’re told.

If these problems continue, I think it might become more difficult for the company to manage them. That could cause profits to fall below expectations.

However, I’d see this as a short-term issue that would affect many competitors equally, so I’m not too worried. For now, I think Renew Holdings looks an interesting opportunity for continued growth.

A cash-backed 6% yield

Bank note authentication and brand protection specialist Spectra Systems has one of the highest dividend yields on AIM, at 6.4%.

This tempting payout looks fairly safe, in my view. Spectra has no debt and generates plenty of cash each year, thanks to its 35% operating profit margin. I think the main reason these shares don’t trade much higher is that the company’s growth rate has been fairly slow in recent years.

Investors worry that demand for bank notes and Spectra’s services could fall in future years. But there’s no sign of that this year and I think new products such as a machine-readable plastic banknote material could support long-term demand.

This is a niche business, but as an income investor I’m tempted to add a few to my portfolio.

Pharma growth

Healthcare is one of the long-term growth themes in my portfolio. One less well-known company in this sector is Alliance Pharma (LSE: APH).

Alliance specialises in buying mature consumer healthcare products and improving their distribution and marketing. The firm’s share price has doubled over the last five years.

This business may not sound that exciting, but profit margins have averaged over 20% since 2016 and sales have nearly doubled over this period.

I think management is a key risk here – misjudged future acquisitions could hit profits and damage the group’s growth record.

For now, though, I remain bullish about this company. I’d be happy to tuck a few shares away for the next five years.

25% growth forecast at this stock

My final pick is currency exchange specialist Argentex (LSE: AGFX). This small-cap specialises in providing foreign exchange services to corporate and private clients.

The business is led by founder and CEO Harry Adams, who has a 12% shareholding in the business. I reckon this should mean his interests are well-aligned with those of shareholders.

Perhaps the biggest risk I can see is that this is a fast-growing, competitive market. Will Argentex end up as a long-term winner or an also-ran?

I don’t know, but broker forecasts suggest it could report 25% earnings growth this year. Based on these estimates, I think the shares look very cheap on eight times forecast earnings. This AIM stock is on my list as a potential buy.

Today, I’m looking at this growth stock again to see if I should buy more shares for my portfolio. Let’s take a closer look.

The business

Spectra Systems is a leader in providing security technology, including software and advanced materials. Its core revenue generation comes from authentication and processing of banknotes.

Spectra’s banknote authentication technology is top secret as it’s used by global central banks, including two G7 banks. While it authenticates at Level I and II – public level authentication – Level III is the covert one. This has to be unbreakable as it needs to prevent state-sponsored counterfeiting. For example, a foreign country flooding another country’s economy with fake banknotes.

There’s some caution here because of the increase in use of digital payments (not to mention cryptocurrencies). This may impact SPSY’s banknote authentication revenues in the future. However, as the technology is used at Level III authentication, as long as there are any banknotes in circulation then there’s a risk of state-sponsored counterfeiting. It means the firm’s tech will still be required.

The company also offers various other brand security services for a wide range of consumer products and lotteries.

Attractive fundamentals

For being a small-cap growth stock with a pipeline of development opportunities, the company achieves very strong financial numbers. For example, the most recent gross margin was a high 69%, and the operating margin an impressive 36%.

It’s is cash generative, and is able to pay a respectable dividend. The current dividend yield is 4.6%, which I consider attractive considering it’s investing in its development pipeline too.

Recent results show growth stock characteristics

The company released its interim results in September that were in line with the board’s expectations. Revenue grew 23%, and adjusted earnings per share rose by a huge 45%. Cash on the balance sheet increased to $12.8m, which was up from $10.9m. The company is on track to achieve record earnings for the full year.

Since the interim results, it announced that one of its longstanding central bank customers placed a new order as part of another five-year renewal agreement. Based on this renewal, results should now exceed market expectations for the year. The share price has fallen since this release, so I don’t think the market is pricing in the potential for Spectra Systems.

Is this growth stock a buy?

Because of the small size of this growth stock, it flies under the radar of research analysts and institutions, which means it’s hard to get accurate forecasts. It might be considered as higher-risk due to the lack of research on the stock, but I see it as an opportunity. Spectra Systems has recognised the lack of research into the company and recently appointed Allenby Capital to provide extra brokerage and analysis.

I think this growth stock will outperform in 2022 if the market prices the shares correctly for the growth ahead. There’s a risk that rising digital payments limit its banknote authentication business, but SPSY is diversified across other sectors. It’s a buy for my portfolio.

Rupert Hargreaves: Trifast

Trifast (LSE: TRI) specialises in the design and manufacture of high-quality industrial fastenings. After a slowdown in demand last year, sales have rebounded this year. Revenues in the first half increased 30% compared to 2020 and are now ahead of 2019 levels.

As the global economy continues to rebuild after the pandemic, I think this trend could continue. Management is also looking to complement organic growth with acquisitions.

At the beginning of September, Trifast acquired Falcon in the USA, and management has said that the search for additional acquisitions continues “apace.”

Considering the growth potential, I would buy the stock for my portfolio. Some challenges it could face that may hold back growth include cost and wage inflation pressures.

Rupert Hargreaves does not own shares in Trifast.

Christopher Ruane: Card Factory

As people buy Christmas cards, small-cap stock Card Factory (LSE: CARD) is on my radar. It’s 56% higher than a year ago, but well below its Spring highs.

The company sharply cut its loss in the first half. The Christmas season should be busy. Increasing moves online could help grow sales. The company is cash generative and cut net debt by a third in the first half. But Card Factory remains risky. Its shops can see sales plummet if there are lockdowns, and supply chain inflation could hurt profits.

Christopher Ruane does not own shares in Card Factory.

Roland Head: Spectra Systems

I think that security technology specialist Spectra Systems (LSE: SPSY) could be a quality company at a reasonable price.

Spectra specialises in providing authentication technology for documents, consumer goods and currency. For example, Spectra provides the security features for many countries’ banknotes and the equipment needed to test them.

Banknotes are Spectra’s biggest market, and this is probably the main risk for investors. Use of paper money is falling and the business could struggle to grow.

However, Spectra is diversifying and continues to win new contracts. The group also upgraded its profit guidance for 2021 in October. I think the shares look reasonably priced at current levels. There’s also a tempting 4.7% dividend yield. This is a stock I’d buy today.

Roland Head does not own shares in Spectra Systems.

Andy Ross: finnCap  

Financial company finnCap (LSE: FCAP) is a great small-cap stock in my opinion. Apart from its small market capitalisation, which gives it plenty of headroom to grow into a much larger company, I really like finnCap’s financials. They indicate to me a stock that has serious growth potential. 

The group has a three-year compound annual growth rate (CAGR) for sales of 29%. This is important because, as an investor, I want to know that demand for a company’s products/services is continuously increasing. The operating margin is improving, so all in all it seems like potentially a great time to buy the shares.  

Andy Ross does not own shares in finnCap.

Royston Wild: Science in Sport 

I’d use recent price weakness at Science in Sport (LSE: SIS) as a dip-buying opportunity. The sports nutrition giant has fallen 10% in value over the past month. Demand for the products it makes is rocketing as peoples’ desire to live healthier lifestyles grows and fitness activities become more popular. Science in Sport’s revenues jumped 24% during the six months to June. 

This small cap’s more than doubled in value during the last year. If industry analysts are to be believed there should be plenty of opportunity for Science in Sport’s share price to continue soaring too. Experts at Statista for example think the global sports nutrition market will be worth $35.4bn by 2026. That’s up significantly from the $16.5bn it was valued at last year. Through its popular products I think the business should make big profits in this favourable landscape.  

Royston Wild does not own shares in Science in Sport.

Zaven Boyrazian: iomart

iomart (LSE:lOM) is a cloud-computing business trying to take on industry giants like Amazon, Alphabet, and Microsoft. That’s quite a tough bunch of competitors, so it’s not surprising to see revenue growth struggle. However, management has since begun pursuing a niche in the hybrid-cloud market through bolt-on acquisitions.

It will take some time before this new strategy starts yielding results. However, iomart continues to be supported by fairly impressive cashflows courtesy of its high customer retention and 93% recurring revenue.

There is obviously no guarantee of success. And using an acquisitive approach has led to an increased debt position that adds more risk. But given the potentially explosive returns of becoming a new leader in cloud computing, I think the risk is worth the reward.

Zaven Boyrazian does not own shares in iomart, Amazon, Alphabet or Microsoft.

Paul Summers: Bioventix

Although still far from being cheap, I think shares in biotech firm Bioventix (LSE: BVXP) are starting to look attractive. Stock in the small-cap antibodies supplier has fallen 20% in value in 2021 so far. 

At least some of this selling pressure has been due to hospitals continuing to prioritise dealing with the pandemic over diagnosing people for other things. To make matters worse, understandably cautious patients aren’t even reporting symptoms to healthcare professionals. As a result, Bioventix’s main business has been suffering.

I reckon this might be a great contrarian opportunity. BVXP’s returns on capital and margins are some of the best on the market. The balance sheet also looks sound. Any indication that Covid-19 is being beaten back and the shares could rally. 

Paul Summers has no position in Bioventix

The company began its life as a spin-out from the research of founder and CEO when he was a professor at Brown University in the US. Since then the company’s focus has been on providing authentication systems and anti-counterfeiting devices for banknotes for 19 central banks across the world. While this has been a steady and sometimes profitable business, there have been a few changes of late that interest me.

The first is a renewed focus on profitability, which has entailed a cost-cutting drive, a move to in-house manufacturing of its covert materials products, and the acquisition of a company making the phosphor-based materials used by central banks in banknote production. This has led to a rapid uplift in financial performance with revenue rising 48% in the year to June to $7.1m and adjusted EBITDA hitting $3m. The company is also cash flow-positive and with no debt and $9.4m of cash on hand, it has begun paying out dividends and intends to return all cash in excess of $5m to shareholders.

The second thing that is interesting me is the company’s push into authentication systems for physical goods such as luxury clothing and other items. Spectra has recently won regulatory approval to roll out its TruBand smartphone-based authentication system for cigarettes in China. If this trial goes well and Spectra is able to roll out the product to other goods and countries, its growth prospects are rather astonishing.  

However, success is still far from certain and with the company’s stock price up over 350% in the past year, a good deal of growth has already been factored-in. Would be-investors should do their homework and be cautious but I still see plenty of reason to be interested in Spectra Systems.

A bargain basement growth stock?

A much safer option is £240m market cap Alliance Pharma (LSE: APH). It takes a rather novel approach to business by avoiding expensive and hit-or-miss R&D in favour of simply acquiring already certified treatments and then doing what it does best, marketing them and finding distribution routes into new markets.

This has worked out very well for the company with revenue and EBITDA more than doubling last year, to £97.5m and £26m, respectively. Much of this growth was due to a large purchase, but previous acquisitions also continued to perform well with several growing by double-digits. With year-end net debt at 2.8 times EBITDA it’ll probably be a while before the company makes further large acquisitions, but impressive second half cash flow was already pushing down leverage, so they will come eventually. 

With its shares priced at just 12.8 times forward earnings while offering a decent 2.3% dividend yield, Alliance Pharma offers both a significant margin of error for investors and good growth prospects through organic expansion and further acquisitions.