£400 to invest? Here’s how I’d look to make a 400% return investing in shares

Investing in shares can be very financially rewarding and here’s how I plan to make big returns from the stock market, particularly from smaller cap shares.

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There has been increased interest in investing in shares recently, which is great. With ISA season (basically, new ISA allowances) fast approaching, I’ll be planning which shares I want to add to my portfolio.

My approach to finding shares with big growth potential

To get big gains from something like a £400 investment, I’ll want to focus primarily on smaller shares. That’s not the same as the absolutely smallest shares, which can be risky and volatile. Instead, I’ll focus on what’s often referred to as micro-cap or small-cap shares. Personally I quite like shares of companies with market capitalisation between £40m and £250m. That’s quite a range but opens up a large pool of high-quality, high-growth companies.

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I want to avoid the very smallest shares as mentioned, while also avoiding the very the biggest companies. These are often less agile and slower growing. Although of course there are exceptions.

Also when it comes to achieving a return like 400% or more I’ll need to be realistic about how long that might take. Unless I take an inordinate amount of risk it’ll take a few years to happen, but that’s still a huge return. To quadruple my money is very good going. If that performance can be replicated over a long timeframe it would lead to serious wealth creation.

Investing in shares with room to grow rapidly

When it comes to the type of fast-growth shares that could give me a 400%-plus return over a reasonable timeframe (let’s say 3-5 years), these are some names my research has turned up.

One is Belvoir Group (LSE: BLV). The property franchise group has done remarkably well through Covid-19. Back in December, it was able to announce that trading in the 10 months ended 31 October had been ahead of its pre-Covid-19 expectations. I’d have expected tenants to withhold rents because of Covid-19-related job losses, but by and large, that doesn’t seem to have been the case at all. 

Before Covid-19, Belvoir was doing very well. Revenues went from £6.95m in 2015 to £19.25m in 2019. Profits have also risen impressively. I’m confident the growth can continue into the future. The valuation seems reasonable to me at around a price-to-earnings ratio of 15. 

There’s a risk that franchisees could become unhappy with the brand, as has happened at Domino’s. That would affect sales, as would tenants struggling to pay rent if the economy takes another downturn.

Also, as a franchisor, Belvoir’s brand is very important. That means any scandal by its franchisees could impact the overall value of the franchise. Overall though I’m very confident about Belvoir’s ability to keep growing and to keep its franchisees onside. 

When it comes to smaller, growth-style shares, I also like the look of MPAC, Venture Life, Motorpoint, and the larger Sylvania Platinum. The latter has a market cap nearer £300m, but for me still falls into a potentially high-growth stock category.

So if I wanted to earn a 400% return on an initial £400 by investing in shares, I’d focus on smaller cap shares. I’ll particularly focus on companies that are profitable, such as Belvoir Group. 

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Andy Ross owns no share mentioned. The Motley Fool UK has recommended Motorpoint. 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.

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 considered, so you should consider taking independent financial advice.

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