A cheap AIM stock that I hope to never sell!

AIM stocks can be a gold mine for UK stock investors. They can also do more risk than FTSE 100 or FTSE 250 company. But businesses in London’s alternative market often grow rapidly and produce impressive results in the process.

Keyword Studios (LSE:KWS) is the part I am buying for my portfolio in spring 2021. The business provides software services to over 50 video game studios around the world.

And after Wednesday’s excellent results release, I’m considering increasing my stake in the AIM business.

Better results

Video game revenue rocketed during the pandemic as people entertained at home. But fewer titles are being released and the end lock sees the industry shrink by 2022.

However, this has not taken the wind out of Keywords Studios’ screen. In fact, today it raised its profit guidance for the second time in as many months with second-half profits.

Organic sales rose 22% between July and December, it announced, continuing the strong momentum experienced in the first half. Comment keywords if “continues to benefit from the industry’s focus on new content creation and the increasing complexity of games, resulting in strong demand for our services..”

Why Keywords Studios?

British stock investors have several ways to capitalize on the growing video game market. game developer Frontier Developments and Group 17 District it can also be found in London’s AIM index.

However, Keywords Studios may be a less risky way to invest in the entertainment software sector. As analyst Aarin Chiekrie in Hargreaves Lansdowne comment: “A diverse client base and geographic reach means less exposure to the hit-or-miss risk of individual games, and some titles are insulated from the changing development cycle of new releases..”

Shares of Frontier Developments fell earlier this month as the title sold off F1 Manager 2022. Businesses like Keywords are not seen at the same level of competition.

A top growth stock

The video game sector is a good place to invest in my opinion. Analysts at PwC believe that the industry will grow at a compound annual growth rate of 8.4% over the next few years. It is estimated to be worth $321 billion by 2026.

And Keywords Studios can be a great investment in this booming industry. The company’s revenue could suffer in 2023 as consumers cut back on discretionary spending. But with a market cap above £2bn and clients included Microsoft, Take-Two Interactive and Electronic Artshave the influence and recognition of the industry to grow.

But I don’t see these factors being reflected in the company’s rock-bottom valuation. Today Keywords shows trade at a price-to-earnings growth ratio (PEG) of 0.3. Any reading below 1 indicates that the stock is undervalued.

City analysts think that annual income growth will accelerate from 7% in 2023 to 11% next year. I expect this strong momentum to continue as well, with growth likely to be driven by further acquisitions. This is an AIM stock I don’t want to sell.