For 30 years the Alternative Investment Market (AIM) has been home to Britain’s smaller, nimbler quoted firms. Born in 1995 as a junior market, AIM was meant to give ambitious companies access to equity capital without the heavy compliance burden of the main London Stock Exchange.
Three decades on, AIM remains an underappreciated corner of global capital markets. A new study from Octopus Investments, its inaugural *Growth Barometer*, suggests that investors might be missing one of the best buying opportunities in British equities since the financial crisis.
The report comes at a fraught time for AIM. Share prices across the index have struggled in recent years, battered first by rising interest rates and then by global risk aversion towards smaller firms. Since late 2021 the FTSE AIM50 index has shed 37% of its value. Yet beneath that weakness, Octopus finds that operating performance has been strikingly strong: aggregate profits and earnings have grown by nearly 60% over the same period. The result is a collapse in valuation multiples: the price-to-earnings ratio on AIM has fallen by more than 60%, to levels last seen in the aftermath of 2008.
That divergence — rising profits, falling valuations — has created what Octopus argues is a “significant store of value”. For long-term investors, it could represent a rare chance to buy growth companies cheaply.
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The AIM Market: How does it compare with the alternatives?
By the numbers, AIM stacks up surprisingly well against global peers. The Barometer forecasts that AIM companies will deliver faster earnings-per-share growth than both the Nasdaq Composite and the FTSE 100 Index. Yet while Nasdaq trades at a forward price-to-earnings multiple of 26, AIM languishes at just 12.2, barely above Britain’s blue-chip index. On another measure, EV/EBITDA, AIM companies look cheaper still: just 6.1, compared with 8.0 for the FTSE 100 and 16.5 for Nasdaq. Investors are paying up for American growth, even as British firms deliver it at a discount.
The sectoral make-up of AIM may surprise those who still view it as a playground for speculative start-ups. The ten largest constituents today include businesses spanning leisure, health technology, mining and data analytics. Jet2 LON:JET2, the budget airline with a £4bn market capitalisation, leads the pack by profitability.
More broadly, profits are concentrated in resource-heavy areas: non-energy minerals, encompassing everything from precious metals to construction materials, are expected to account for one-fifth of total AIM profits this year. That sector is also forecast to deliver compound annual growth of 45% through 2026. Health technology (32%) and consumer durables (25%) follow behind.
AIM’s shining stars
Octopus highlights two “shining stars” to illustrate AIM’s breadth. Advanced Medical Solutions LON:AMS, a world leader in tissue-healing products such as adhesives and sutures, has been steadily expanding its surgical portfolio. Animalcare LON:ANCR, based in York, develops veterinary pharmaceuticals serving companion animals and livestock alike. Both firms exemplify the kind of niche, globally relevant businesses that AIM was designed to nurture.
Still, structural challenges remain. Smaller companies have borne the brunt of negative capital flows as investors sought shelter in larger, more liquid names during the rate-hiking cycle. Costs of maintaining a public listing have also crept up. And policy changes risk dampening demand further: from April 2026, Business Relief, a valuable tax incentive for AIM investors, will be halved. Without stronger government support, Octopus warns, Britain risks starving its quoted growth companies of capital just when they need it most.
There are reasons for cautious optimism. Interest rates are now falling across developed markets, which could revive appetite for riskier equities. Valuations leave ample room for sentiment to improve.
As Richard Power, Head of Quoted Companies at Octopus, notes: “What has been masked by negative fund flows is the exceptional earnings growth AIM companies have continued to deliver. Smaller companies can adapt more quickly to changing dynamics, and AIM continues to deliver superior earnings growth compared to Nasdaq. Once sentiment towards the UK improves, this progress will be reflected in share prices.”
Three decades after its creation, AIM’s relevance is again in question. Yet if Octopus is right, the index may still be Britain’s overlooked growth engine: unfashionable, undervalued and quietly compounding. Investors may not ignore it for much longer.
