plc isn’t the only growth stock I’d stick in my ISA

Edward Sheldon looks at two growth stocks that have strong ISA potential, including plc (LON: BOO).

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Placing growth stocks within an ISA is quite a sensible strategy. That’s because capital gains within an ISA are tax-free. So for example, if you were lucky enough to enjoy a ‘10-bagger’ and turn £2,000 into £20,000, you would be able to keep 100% of the proceeds, instead of having to hand over a chunk of your gains to the tax man.

With that in mind, here’s a look at two growth stocks that I believe have excellent ISA potential.

Clothing manufacturer (LSE: BOO), which offers the latest fashion at affordable prices, is growing at a stunning rate. Indeed, between 2014 and 2017, sales surged from £110m to £295m, a compound annual growth rate (CAGR) of nearly 40%. Profitability in that time climbed significantly higher too, with net profit almost tripling from £8.4m to £24.5m. Can the company keep this growth rate up? I believe it can.

Boohoo released a strong trading update in January, in which it revealed that for the first 10 months of the year, total group revenue had risen to £491m, a huge 97% increase on the same period last year. Of particular note was the performance of subsidiary PrettyLittleThing, which saw its top line rise an incredible 232%, taking year-to-date revenue to £146.4m. Management advised that full-year group revenue is likely to be up around 90% on last year, lifting its guidance from a previous estimate of 80%. City analysts currently have a figure of £563m pencilled in.

Boohoo shares have been a spectacular investment over the last three years, rising from 27p in mid-March 2015 to 175p today. However, if the company continues to grow at such a strong rate, I think there could be plenty more to come from the shares. The stock certainly isn’t cheap, trading on a forward-looking P/E ratio of around 48, however, given that the shares have pulled back around 30% over the last six months, I think now could be a good time to take a closer look at the business.

Brooks MacDonald

If looks too expensive for you, take a look at Brooks MacDonald (LSE: BRK). It’s an independent investment management company that offers a range of specialised services to individuals, pension funds and institutions. Fund management may not be the most exciting business in the world, but don’t let that put you off – over the last decade the shares have returned around 675%.

Half-year results, released yesterday, showed that the group has momentum at present. Funds under management climbed 26% on the previous year, to £11.7bn, with revenue rising 11% to £48.8m. Earnings per share growth was a little soft at just 1.2%, however, the company did increase its half-year dividend by 13% to 17p per share. Chief Executive Caroline Connellan commented: “Following an encouraging first half of the year and continued momentum in the early weeks of the second half, we remain confident of the significant growth opportunities open to us.”

With analysts forecasting full-year earnings of 114p per share, the forward P/E here is 18.7. A prospective dividend yield (also tax-free within an ISA) of 2.3% is on offer. For a company that should enjoy tailwinds from rising investment markets over time, those metrics look reasonable to me.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon owns shares in The Motley Fool UK has recommended Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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