10 of the best technology stocks on AIM

Stockopedia’s Ben Hobson has pulled together a list of the best tech stocks on AIM, large and small.

The Alternative Investment Market (AIM) has bounced back strongly in the four months since markets collapsed under the weight of the coronavirus pandemic. Some of the big winners in that time have been speculative small-cap mining and healthcare shares. But dig a bit deeper and it’s also clear that there have been big winners in other sectors - including technology.

Technology has been a watch-word in US stock markets over the past decade. Some of the biggest shares in that sector - ranging from Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB) to Google (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) - now dominate the headlines and are heavily watched.

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By contrast, technology is arguably under-represented on UK indices. There are around 15 £1 billion-plus tech stocks quoted in London, led by names like Sage (LSE:SGE), AVEVA (LSE:AVV), Avast (LSE:AVST), Auto Trader (LSE:AUTO) and Rightmove (LSE:RMV).

In terms of investment profile, the majority of these large-cap tech shares are high quality and high momentum. They’re popular but rarely cheap - and there are only a few of them. In total, there are around 50 tech stocks on the main market.

To open the choice up when it comes to technology shares, you need to look further afield to the Alternative Investment Market. Here, there are another 117 companies classified in the tech sector. 

Like many smaller, more speculative shares of the 830 in total that are listed on AIM, some are unprofitable and potentially volatile. But the good news is that the market has a robust contingent of profitable technology firms that have been performing strongly over the past year.

This week we’ve pulled together a list of the best quality tech stocks on AIM and sorted them by performance over the past 12 months. The only restrictions were that we wanted positive price performance and an overall Quality Rank (scoring their business and financial strength) of more than 80 out of 100.

These rules pick up some interesting names across the market-cap spectrum, from the micro-cap enterprise software firm Crimson Tide (LSE:TIDE) to the mid-cap identity data specialist GB (LSE:GBG). Team17 (LSE:TM17), the gaming group, leads the list with stellar relative price strength of 131% over the past year. It’s closely followed by another games creator, Frontier Developments (LSE:FDEV).

Note that the valuations vary a lot on a price/earnings (PE) basis. Tech stocks that have captured the imagination of the market can become very expensive. But a focus on quality should help steer the selection process away from speculative and less secure businesses.

For investors looking for the hottest sectors in the aftermath of the coronavirus crisis, technology appears to be growing in stature on the Alternative Investment Market. In the absence of tech growth opportunities elsewhere in the market, AIM seems to be a useful source of ideas.

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