The top stocks for a growth-focused Stocks & Shares ISA

The new Stocks & Shares ISA allowance is nearly upon us and I think these strong growth stocks look like strong contenders to add to my ISA.

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The new tax year begins on 6 April 2021, which is just around the corner! Again, investors will be able to put up to £20,000 in their Stocks & Shares ISA. I personally like the structure for its tax advantages and plan to invest in growth stocks to try and boost the overall returns I get from April 2022, when the new ISA tax year starts, through to March 2023, when it finishes.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Top stocks for a growth focused Stocks & Shares ISA

Small-cap growth stocks have been out of favour, which I think presents opportunities for long-term investors. Cerillion (LSE: CER) strikes me as one potential top growth share for my ISA. Another top option, in my opinion, is Franchise Brands (LSE: FRAN).

Cerillion is a provider of billing, charging, and customer management systems. It was formed in 1999, so is an established company, giving me confidence that it has strong customer relationships and a service that is in demand.

It has shown strong sales and revenue growth. When it comes to the latter, revenue has gone from 8.5m in 2016 to £26.1m in 2021.

Another benefit of the strong financial performance of the group is that the dividend is growing strongly. It has gone from 4.5p in 2018 to 7.1p in 2021.

A current ratio (current assets minus current liabilities) over two indicates there is good balance sheet strength. That potentially protects the downside risk of investing in Cerillion. But, if technology stocks keep falling, Cerillion may just get pulled down along with other stocks.

All in all, Cerillion looks like a high growth stock trading at a reasonable price. The price-to-earnings growth (PEG) ratio, for example, is only 0.8. This indicates the shares are not expensive. That’s why I’m tempted to add the shares when I have next year’s ISA allowance.

Expensive – but worth it?

Franchise Brands is unsurprisingly a franchisor. It owns franchises across a B2B division comprised of Metro Rod, Metro Plumb, and Willow Pumps, and a B2C division that incorporates ChipsAway, Ovenclean, and Barking Mad. In November 2021, it acquired Azura Group, a franchise management software system developer that the group says represents an important step in its digital journey. It could both improve the operations of the group’s franchise businesses, and also be sold as a service to other businesses.

Franchise Brands has seen rapid revenue growth in recent years. It has gone from £4.5m in 2016 to £49m in 2020 (the latest full-year figures).

Like with Cerillion, the strong performance allows management to grow the dividend quickly.

The biggest pause for thought would be that the shares are not cheap. They trade on a P/E of 27, while earnings growth has been a bit volatile and actually declined in 2020, making the shares expensive on a PEG ratio basis. As with all franchisors, a perennial risk is that it falls out with major franchisees, as has been seen with Domino’s Pizza in recent years. 

Nonetheless, with management’s strong track record, good revenue growth, and the potential for big dividend increases, I like the share.

Cerillion and Franchise Brands are, in my opinion, two top UK shares to add share price growth and could therefore be ideal for my new Stocks & Shares ISA allowance. 

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.

Andy Ross owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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