Markets need to pause

Stocks are bouncing back too fast

With many stocks bouncing strongly over the past few weeks, you could be forgiven for thinking that the world was back to normal, coronavirus a minor concern and a recession firmly off the cards….if only!

The FTSE100 index and its constituents of aged dinosaurs has risen 23% from the March lows, the S&P500 index has climbed 35% and the AIM index is up a staggering 48%, meaning it is now only 10% below the year highs.

While the initial sell-off was brutal for AIM, and in some cases fully justified given the questionable outlook for many companies whose businesses are faced with considerable challenges, the rebound from many stocks is all the more remarkable.

The week saw shares in boohoo Group (LON: BOO), the leading online fashion group and AIM’s largest company, rise to all-time highs as it acquired the remaining 34% of shares in Limited (‘PLT’) from its minority shareholders. BOO’s market capitalisation of £4.7bn makes it the UK’s fourth largest listed retailer by market capitalisation, ahead of Morrisons (£4.5bn) and Sainsbury’s (£4.3bn). At the current share price of 383p BOO shares trade at 60x revised forecast earnings for 2021 or 3.3x revenue and 42x earnings for 2022. There is no doubting the attractions of its online operating model and ability to acquire struggling brands on the cheap, but in a recessionary climate that is a mighty rating by any stretch. To put things into context, shares in Next (LON:NXT), another excellent retailer with a substantial online presence, trade at only 13.7x forecast earnings for 2022 or 1.7x sales. BOO has silenced the doubters before but it has a lot to live up to.

Video gaming companies on AIM have performed particularly strongly over the pandemic and in this interview with Jeremy Naylor of IG markets, Chris Boxall, co-founder of Fundamental Asset Management, discusses the recent performance of these and thoughts for the future.

Companies covered in the interview include:
Team17 (TM17), an existing Fundamental AIM portfolio holding.
Frontier Developments (FDEV)
Codemasters (CDM)
Keywords Studios (KWS)
Sumo (SUMO)


You can find out more about Fundamental’s high performing AIM portfolio service, including the latest fact sheets, from the link here.

Fundamental Asset Management has delivered exceptional investment returns investing in AIM for more than 16 years.