The UK stock market is lagging behind technology. Can this booming AIM stock change that?

The stock market loves a good rags to riches story. Everyone has seen a picture of Jeff Bezos sitting at a small desk in his garage Amazon written on the wall in blue marker.

Taken back in 1994, it has become an iconic image of how a small home business can turn into a multi-billion dollar company. Just three years later, Amazon went public with a dividend of just 9c (when preparing for a stock split). Twenty-seven years later, the stock is up 190,000%. That's a 32.2% annual return, on average.

Since then, the US tech industry has exploded, with companies like Nvidia, AMD again SMCI earning billions of dollars worth.

But the UK is lagging behind. Even our most promising technology lover, ARMskip the US green grass ship. Popularity of Darktrace, Softcat again Computer center show promise – but I think a very small stock could be our next big thing.

Cerillion

Part of the focus is less technology CHECK index, Cerillion's (LSE: CER) up-and-coming £570m IT services company. At first glance, it appears to be little more than a managed service provider focused on billing and billing.

But there's a reason why it's been the top performer on the AIM index over the past five years, up 1,200%.

The company's expertise in designing and implementing AI-enhanced multi-service communication systems has driven high demand. As an IT industry expert, it looks to me like a company that should have the highest value.

I won't bore non-technical readers with the details but if it delivers as advertised (and the reviews suggest it does) then I'm very excited about its future.

Finance

Its earnings growth rate of 39% is double that of the UK software industry and not far behind US tech giant Nvidia. In fact, the companies share several similarities. Both have high price-to-earnings (P/E) ratios and overvaluation ratios of 40-60%.

Earnings growth is forecast to decline to 9.8% annually going forward, which could push the P/E ratio even higher. That could dampen investor sentiment.

Usually, that makes me question more growth. But Cerillion's future return on equity (ROE) is forecast to be 30% over three years, while earnings per share (EPS) are expected to grow 24% by 2027.

So I think it's just the beginning.

Risk/reward

Before I get too carried away, such stocks are usually a very risky investment. With low liquidity and a small market-cap, it takes less to move the price. Even something as small as a change in CEO can send things into a tailspin.

In addition, technology can be a fast-growing but also very competitive industry. Cerillion is not alone in this space and is smaller than many competitors. All it takes is one big player to come out with the same idea and the sales just dry up.

So it's more of a risk/reward situation.

Final thoughts

As is often the case in technology, the best companies outpace a market that is slow to adopt new ideas. As such, Cerillion can be set for a bright future.

With the big US tech stocks looking to grow exponentially, maybe it's time to make room for the little guys. I rarely find a small stock with such great potential so I plan to buy shares this month.