Best AIM stocks of 2019 smash the FTSE 100

Just three weeks into 2019, our former AIM writer of the year names small-caps generating huge gains.

There were a number of large and successful AIM companies that were hit hard by the slump on the junior market in the fourth quarter of last year. Some of those companies have bounced back in January, helping AIM go back to outperforming the Main Market. 

The FTSE AIM 100 index has risen by 8.5% during January, while the FTSE AIM UK 50 index, which underperformed the AIM 100 last year, is 10.7% higher. The AIM 100 fell by 18.9% in 2018, while the AIM 50 fell 23.5%. 

The FTSE AIM All-Share index is 6.8% ahead so far this year. In contrast, the FTSE Fledgling index and FTSE All-Share index are just 2.2% higher.  

Online fashion retailer ASOS (LSE:ASC) was a major factor in Aim's slump in December, when it published an unexpected profit warning. On 17 December, ASOS warned that revenues would not grow as rapidly as expected, although they were 14% higher in the quarter to November 2018. Profit expectations were halved for the year to August 2019. 

On the day of the profit warning the ASOS share price fell by 37.4%. ASOS has a higher weighting in the AIM 50 than the AIM 100 and that added to the underperformance of the former. 

The ASOS share price is 39% higher this month, but this is from a lower base, so it remains 45% lower than at the beginning of October 2018 and nearly one-quarter down on the share price immediately prior to the profit warning. 

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Mixer drinks supplier Fevertree Drinks (LSE:FEVR) is 34% higher already this year, with an additional boost provided by its recent trading statement revealing that "the outcome for the full year will be comfortably ahead of the board's expectations". 

Growth is coming from all geographic areas and the cash position is in line with expectations.  

Fevertree has a weighting in the AIM 100 of 5.93% (based on 2018 year-end figures), which is the second-highest weighting after Burford Capital (LSE:BUR) with 8.78%. Burford has posted a more modest gain of 7.6% so far this year. 

Fevertree has a higher market capitalisation than ASOS, which had the highest weighting in each AIM index until recent months. 
ASOS and Fevertree were still trading on heady ratings at the end of 2018, so the share price recoveries have increased those ratings further with prospective price/earnings (PE) multiples of around 50. 

Software robotics technology supplier Blue Prism has not even been hampered by its latest large fundraising. The announcement sparked a 240p rise in the share price on the day, and the share price is 26.6% ahead in 2019. 

Loss-making Blue Prism (LSE:PRSM) raised £100 million at 1,100p a share, which was a 5% discount to the market price prior to the share price rise. The money is earmarked for the opening of more offices around the world and additional marketing.

In the year to October 2018, Blue Prism increased its revenues by 125% to £55.2 million, of which 94% is recurring, and management is confident that there is plenty more growth to come, but it wants to take advantage before competition gets any more fierce. A profit is still a long way off, though. 

There are 78 companies in the AIM 100 that have risen this year with another three that are unchanged. The top three performers are the same as for the AIM 50. 

FTSE 100 comparisons 

The FTSE 100 index is 1.4% higher this year so it is significantly underperforming all measures of the performance of AIM. 

There are 73 companies in the FTSE 100 where the share price has risen over the year so far. The improvement is more focused than for the AIM 100. The best 10 performers are dominated by housebuilders and retailers, which have bounced back after pre-Christmas trading worries. There is a wider spread of sectors covered in the better performers in the AIM 100. 

The best performer in the FTSE 100 is Persimmon (LSE:PSN), where the share price is nearly one-quarter higher in less than a month and Taylor Wimpey (LSE:TW.) is not far behind in terms of its gain. Barratt Developments (LSE:BDEV) is the other housebuilder in the top ten performers.  

There are not many housebuilders on AIM and the largest one is Telford Homes (LSE:TEF), which has increased by 17% this year. 

Next (LSE:NXT), Marks & Spencer (LSE:MKS), Ocado (LSE:OCDO) and Tesco (LSE:TSCO) have all posted good gains. Associated British Foods (LSE:ABF) could also be included given that Primark is an important part of its business. Next's trading update at the beginning of the year was ahead of expectations. This was because the last three weeks of 2018 were strong and trading trends were similar for Marks and Spencer – although not as good. Some of the retailer trading statements purely reassured the market that trading was in line with expectations.

Three of the worst four performers are pharma and healthcare companies. Hikma Pharmaceuticals (LSE:HIK) has fallen by nearly 10%, while Reckitt Benckiser (LSE:RB.) and AstraZeneca (LSE:AZN) have fallen by nearly 7%. 

Alliance Pharma (LSE:APH) and Horizon Discovery (LSE:HZD) are among the worst performers in the AIM 100 but there are much worse performers, such as gaming machines technology supplier Quixant (LSE:QXT), where revenues were lower than expected, and recruitment and training provider Staffline (LSE:STAF), which has been hit by higher borrowings and concerns about one-off costs. The five worst performers of the AIM 100 have fallen by more than 10%. 

Delayed recovery for AIM stocks?

Some of the poor performers in the AIM 100 still have potential to enjoy a delayed bounce back. 

Floorcoverings manufacturer Victoria (LSE:VCP) is still hampered by negative sentiment and short selling. The share price suggests a lack of confidence in the ability of Victoria to meet forecasts, as well as the high debt levels – although this has always been part of the strategy to make acquisitions using a combination of debt and share issues. 

The share price has fallen by 14% this year and it is three-fifths of the level it was at the beginning of October 2018. Victoria is trading on less than ten times 2018-19 forecast earnings, falling to just over eight for the following year, when the full benefits of the integration of recent tiling acquisitions should show through. 

Invesco has taken advantage of the share price fall to increase its stake in Victoria to 26.3% and other institutional investors have also added to their stakes. Directors also bought shares following the interims in November, including one million shares at 490.8p each acquired by a trust associated with executive chairman Geoff Wilding taking his stake to 17.9%. 

Document storage and shredding services provider Restore (LSE:RST) has achieved nine years of underlying earnings growth and it says last year's trading was broadly in line with expectations. However, the volumes of the shredding business were lower than anticipated and that was not well received. 
Restore chief executive Charles Skinner has announced that he will retire and be replaced by former TalkTalk Telecom (LSE:TALK) chief operating officer Charles Bligh in April. Management changes can cause concern for some investors.

This is not a company that is going to achieve a fancy rating. Even so, a 2018 multiple of 12 falling to less than eleven in 2019 is not dear. Peel Hunt has cut its share price target but, at 475p, it is still well above the current share price. The full 2018 figures will be published on 18 March. 

Black Rock has cut its shareholding following the recent trading statement. Charles Skinner has invested £184,000 at 337.1p a share (he owns 1.2% of Restore) and Anthony Pearlgood, who is part of the Restore management team, has invested £50,000 at 299p a share. 

The Diversified Gas & Oil (LSE:DGOC) share price has declined by 5.6% this year. The oil and gas producer has grown significantly via acquisitions and the oil price has recovered in the past few weeks. 

The big attraction of the company is a 6.2% prospective yield and the strong cash flow for existing production that enables this dividend to be paid. 

*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.

Andrew Hore is a freelance contributor and not a direct employee of interactive investor.