How I’d hope to turn £1,000 into £10,000 with growth shares

London’s stock market’s home to many outstanding growth shares. With the right strategy, investors today may be able to make big returns with these UK stocks.

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Growth shares are famous for the explosive shareholder returns they can deliver. While many often fail to justify the hype, investment in these companies can lead to substantial capital appreciation if growth forecasts are met or exceeded.

Just look at the gigantic shareholder profits that Amazon, Netflix and Nvidia have delivered down the years. The trick is often to identify them before they take off, though this isn’t always the case, as we shall see shortly.

What’s clear is that these success stories — along with thousands of others top growth stocks across the world — all share some similar qualities.

Picking top growth shares

For many, the key to making big capital gains with growth shares is to buy small-cap stocks. The theory is that these companies may be in the early stages of their story, and therefore they’ve the potential to deliver outsized returns if they successfully expand their operations and win market share.

But there are drawbacks here. Smaller businesses like these can be more vulnerable to industry or economic shocks. They can also struggle against larger competitors which have superior financial resources and have years of experience.

As I mentioned above, selecting stocks before they take off, while desirable, isn’t essential for a successful growth strategy. FTSE 100 rental equipment supplier Ashtead, and fantasy wargaming giant Games Workshop of the FTSE 250, are two established industry heavyweights that continue to grow earnings at a rapid pace.

And since buying them in recent years, I’ve enjoyed excellent share price gains (as well as healthy dividend growth).

A checklist

When searching for top growth stocks to buy, it’s a good idea to look for companies with:

  • Market-leading products and robust records of innovation
  • Positions in fast-growing industries
  • Competitive advantages (like strong brands and patented goods)
  • Healthy balance sheets and strong cash flows
  • Impressive management teams

Bank of Georgia Group’s (LSE:BGEO) one such UK share on my watchlist today. Along with TBC Bank, it’s one of the leading players in Georgia’s rapidly-growing banking industry. With a market-cap of £2.3bn, it has the scale and resources to give any new competition a hard time.

Sales and profits here have rocketed over the past decade as personal wealth levels in its emerging market have surged. But with product penetration still low, and Georgia’s economy tipped to continue booming, there remains tons of growth potential here.

The threat of a fresh global downturn cannot be ruled out. Yet City analysts are still expecting profits to continue soaring. Annual growth of 6% and 20% is forecast for 2024 and 2025 respectively.

Since early 2012, Bank of Georgia’s share price has rocketed more than 600% to current levels. And over that period it’s also dished out some pretty large dividends. I think a £1,000 investment in the bank today could eventually transform into a £10,000 return within a decade, perhaps sooner.

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.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Royston Wild has positions in Ashtead Group Plc and Games Workshop Group Plc. The Motley Fool UK has recommended Amazon, Games Workshop Group Plc, and Nvidia. 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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