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2 top small-cap growth stocks that could help you become an ISA millionaire

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Looking to create a million pound portfolio over the long term? Not afraid to look beyond those companies in the FTSE 350? Read on if you answer in the affirmative to both questions. 

So long as recent performance continues, I think the following market minnows could be excellent picks for growth-focused investors.  

“Significantly ahead” of expectations

Since last looking at the company in November, shares in designer, manufacturer, and supplier of advanced testing systems for the car industry AB Dynamics (LSE: ABDP) have done really rather well.

Although we’re averse to snatching at profits at the Fool, you’d have locked in a gain of around 50% if you had picked up the stock back then and held until early January. Even taking into account the pull-back seen over the last couple of months, the shares were still up by a none-too-shabby 20% before this morning’s bullish trading update.

Revenues and operating profits for the interim period (six months to the end of February) are now predicted to be “significantly ahead” of the same period in the previous year and “in line with management expectations“.

Encouragingly, the £170m cap’s track testing products continue to be popular with a “further increase in demand” witnessed over the reporting period. A bulging order book will keep staff at the Bath-based business busy until the end of August and according to Chairman Tony Best, into its next financial year. Mr Best went on to say that AB’s new HQ has allowed it to further improve production capability and should “facilitate further growth” going forward. 

All told, I continue to believe that AB deserves its lofty valuation of 26 times predicted earnings.

On song

£268m cap music and audio products supplier Focusrite (LSE: TUNE) was my ‘top pick’ in November.  It’s up 67% so far. When you cast your eye over this month’s trading update, it’s not hard to see why. 

Revenue and profits have both grown over H1, with the former now expected to be “over” £38m — a rise of at least 19% compared to the same period in 2016/17. 

Positively, this growth has been seen “across a wide range of product groups and regions” with sales of the company’s Scarlett and Launchpad ranges especially buoyant over the festive period. Indeed, CEO Tim Carroll thinks recent performance “may signal a wider consumer appreciation” of the company’s products.

Looking ahead, things could get even better for holders. Despite stating that it was keeping “a close and cautious eye” on issues faced by the music retail industry, Mr Carroll also revealed that Focusrite’s management remains “confident about the outlook for the current financial year and beyond“.

Away from recent results, it’s worth pointing out that the small-cap has a history of generating enviable returns on the capital it invests (often indicative of a quality business). Its finances also look solid with a net cash position of £19.7m at the end of February — 39% better than at the end of its last financial year. 

Clearly, the huge rise in price over the past few months means that its shares — like those of AB Dynamics — are not the bargain they once were. That said, I’m confident that the Wycombe-based business remains worthy of investment, especially if short-term traders decide to take profits over the next few weeks and provide a cheaper entry point.

Under-The-Radar Investment

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Paul Summers has no position in any of the shares 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.