Despite recent weakness across much of the Alternative Investment Market (AIM), the junior index is set to deliver exceptional growth, according to Octopus Investments’ inaugural Growth Barometer.
The study aims to highlight businesses driving the future of UK equity growth beyond the mainstream markets.
Since AIM peaked in 2021, profits and earnings on the FTSE AIM 50 index have risen by nearly 60%.
Yet, over the same period the index has fallen by 37%, with valuation multiples dropping by more than 60%.
Octopus said this points to “a significant store of value” emerging during the recent interest rate cycle, potentially creating one of the most compelling buying opportunities in AIM-listed companies since the 2008 financial crisis.
The Barometer forecasts that AIM will deliver stronger earnings per share growth than the Nasdaq Composite, and far in excess of UK blue-chips represented by the FTSE 100. Yet AIM continues to trade at a sharp discount.
Its prospective price-to-earnings multiple currently stands at 12.18x — less than half the Nasdaq’s 26.34x and only just above the FTSE 100’s 11.9x.
On an EV/EBITDA basis, AIM remains cheaper at 6.08x, compared to 8.0x for the FTSE 100 and 16.5x for Nasdaq.
“This means investors are paying more for earnings on Nasdaq, even though some of those companies may not grow as quickly,” Octopus noted.
Jet2 plc tops the AIM for 2025 earnings growth, with a market capitalisation close to £4bn.
The index itself spans a diverse range of businesses from travel and leisure to health technology, mining and data analytics.
Precious metals and construction materials firms are expected to generate the largest share of AIM profits this year at 20.5%.
The non-energy minerals sector is forecast to deliver the strongest compound annual growth rate (CAGR), with a two-year CAGR to 2026 of 45%.
Health technology follows with an expected CAGR of 32%, while consumer durables are projected at around 25%.
Octopus also named two “shining stars” combining historic growth with strong future potential:
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Advanced Medical Solutions, a tissue-healing technologies company producing surgical products including adhesives, sutures and internal sealants.
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Animalcare, a York-based veterinary pharmaceuticals group focused on improving animal health and wellbeing.
The Barometer highlights that smaller companies have struggled in recent years under higher interest rates, leading to negative capital flows.
However, it argues that expected global rate cuts should help restore investor appetite.
Richard Power, head of quoted companies at Octopus Investments, said: “The share prices of AIM-listed companies 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. Smaller companies can adapt more quickly to changing market dynamics, and AIM continues to deliver superior earnings growth compared to Nasdaq.
“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.”
In May, Aberdeen warned AIM could shrink by a fifth in 2025, with 61 companies representing £12.3bn in market capitalisation announcing plans to leave.
Brooks Macdonald also shifted its listing to the London Stock Exchange’s main market in March.
