Opinions on AIM have been soured by negative fund flows and an exodus of companies in recent years, but this has "masked exceptional earnings growth" that many companies still deliver.
This is one of the angles highlighted by Octopus Investments as the asset manager launched its Growth Barometer to track the performance of London's junior market in its 30th anniversary year.
The report highlights a disconnect between earnings growth and valuations: while earnings per share for companies in the FTSE AIM 50 index have risen nearly 60% since late 2021, the index has fallen 37% in value, with its valuation multiple more than halved.
Octopus said the AIM 50 has seen its price-to-earnings (p/e) multiple fall almost 61% in that period.
The wider AIM All-Shre trades on a prospective p/e of 12.2x, compared with 26.3x for the Nasdaq Composite and 11.9x for the FTSE 100, despite forecasts showing AIM companies are set to deliver stronger EPS growth than either benchmark over the next two years.
The 30-year history of AIM, since its launch in the mid-90s, has seen over £135 billion raised for more than 4,000 companies, including household names such as Domino’s Pizza, ASOS, Fevertree Drinks and Jet2.
Octopus also highlighted those known to small cap investors in recent years for their strong profit growth, such as Greatland Resources Ltd (AIM:GGP, OTC:GRLGF, ASX:GGP), Pan African Resources PLC (AIM:PAF, OTCQX:PAFRY, JSE:PAN), Serica Energy PLC (AIM:SQZ), SigmaRoc PLC (AIM:SRC), Thor Explorations Ltd (TSX-V:THX, AIM:THX, OTC:THXPF) and Yellow Cake PLC (AIM:YCA).
In 2023 alone, AIM-listed companies contributed £35.7 billion in gross value added to the UK economy and supported over 410,000 jobs.
Octopus identified non-energy minerals as the largest profit generator on AIM this year, with a forecast two-year compound annual growth rate of 45%.
Health technology and consumer durables are also expected to deliver strong profit growth, at 32% and 25% respectively.
Among its own portfolio holdings, Octopus highlighted two examples of AIM-listed health tech businesses with growth potential: Advanced Medical Solutions Group (AIM:AMS), a £535 million market cap tissue-healing technologies specialist, and Animalcare Group (AIM:ANCR), a £200 million veterinary pharmaceuticals group.
Richard Power, head of the Octopus Quoted Companies Team, said: “The share prices of companies listed on AIM have suffered a difficult few years driven by negative fund flows.
“What this has masked is the exceptional earnings growth that AIM companies have continued to deliver, which this Barometer has demonstrated.
“Once sentiment towards the UK improves, we believe this progress will be reflected in share prices offering investors the potential for significant upside from today’s depressed market levels.”
Octopus said it intended to publish the growth barometer annually at least.