The more lightly-regulated AIM market is supposed to provide an ideal environment for fast-growing businesses to flourish. Things dont always work out this way, but today Im looking at two AIM stocks that have delivered multi-bagging gains for investors.
Both of these companies are still growing fast. Can they double again?
A quality operation
Life sciences company Abcam (LSE: ABC) is one of just eight AIM-listed companies with a market capitalisation of more than 1bn. The firms shares have risen in value by nearly 19 times since its flotation in 2005.
Todays interim results have lifted the shares by another 6% to 935p. Its easy to see why. Sales rose by 30.4% to 102.5m during the first half, while pre-tax profit rose by 20% to 25.1m. The groups operating margin rose to 27.6%, up from 26.8% for the same period last year.
Although these figures were boosted by the weaker pound, even at constant exchange rates Abcams sales rose by 10%. The company says that this figure exceeds the rate at which its markets are growing. This means that Abcam is increasing its market share.
The group appears to be working hard to open up new markets in Asia. This is most notable in China, where Abcams sales rose by 29.5% last year on a constant currency basis. China is now the groups third-largest territory, accounting for 13% of total sales.
Analysts expect Abcam to report earnings per share growth of about 20% for both 2016/17 and 2017/18. After this mornings gains, the groups shares trade on a 2017 forecast P/E of 37, falling to a P/E of 30 for 2018. Thats not cheap, but this high-quality firm has no debt and continues to churn out growth. I believe further gains are likely.
Up 257% in one year: whats next?
Shares of online fashion retailer Boohoo.Com (LSE: BOO) have risen by 257% over the last year. The stock now trades on a forecast P/E of 74. It would be easy to assume that all the good news is in the price, but Im not sure this view is correct.
For example, during the 10months to 31 December, Boohoos US sales rose by 130% to 34.8m. But thats still only a fraction of the 146.7m of clothes it sold in the UK during the same period. I think its reasonable to expect that US sales could eventually equal UK sales.
A second factor is that Boohoo is only expected to report sales of 292.9m for the current year. Bycontrast, rival ASOS is expected to report sales of 1,861m. To me, this suggests that Boohoo.com still has a lot of room to grow.
Could Boohoo double again?
If we assume that Boohoos valuation remains unchanged, then all that would be needed for the shares to double would be for sales to double again. This is possible, but I think its a bit too optimistic.
If we model in an increase in Boohoos costs and more cautious market sentiment, then Id argue the groups sales would need to increase by between 150% and 200% in order for the share price to double.
Thats not impossible 200% sales growth would still leave Boohoo half the size of ASOS, measured by sales. Itremains a buy for bold investors, in my view.
Our experts expect 200% growth
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Roland Head has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended boohoo.com. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.