Growth stocks are popular right now. With advances in technology creating a vast range of new investment opportunities, investors are scrambling to find the next Amazon or Tesla.
Here, I’m going to take a look at the best growth stocks in the FTSE 100 index. Although the Footsie isn’t known for its high-growth shares, there are certainly some compelling growth opportunities for long-term investors.
The best FTSE 100 growth stocks
In a bid to identify the best FTSE 100 growth stocks, I’ve run a simple growth screen on the index. I’ve set up the screen to look for companies that:
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Have generated five-year average revenue growth of 10%+ per year
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Have delivered five-year average net profit growth of 10%+ per year
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Show a five-year average return on capital employed (ROCE) of 10%+
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Trade on a forward-looking price-to-earnings ratio (P/E) ratio of 40 or less
My thinking is that this screen should identify companies growing significantly faster than the market average, are highly profitable, and aren’t valued excessively. In other words, it should identify high-quality growth stocks.
Here are the FTSE 100 growth stocks the screen has identified:
British American Tobacco
London Stock Exchange
Ashtead
JD Sports Fashion
Rightmove
B&M European Value Retail
Taylor Wimpey
HomeServe
Top growth stocks to buy now
There are a few companies on that list I’ll eliminate straight away as top FTSE 100 growth stocks.
British American Tobacco operates in a declining industry so I don’t think it’s a good growth stock. Meanwhile, Taylor Wimpey operates in a highly cyclical industry (housebuilding) so I don’t see it as a good growth stock. B&M European Value Retail has a ton of debt so I’m going to leave that alone too.
This leaves us with five top FTSE 100 growth stocks – London Stock Exchange, Ashtead, JD Sports Fashion, Rightmove, and HomeServe.
From these five, my top picks right now would be JD Sports Fashion and Rightmove.
JD Sports Fashion is benefitting from a number of powerful trends including the shift towards athleisure clothing and working from home. It’s also benefiting from the huge brand power of sportswear giants Nike and Adidas. I think it’s well-placed to continue growing in the years ahead as health and exercise become an increasing focus. Its forward-looking P/E ratio of 23 seems very reasonable, to my mind.
Rightmove – which is one of the most profitable companies in the FTSE 100 – is the market leader in the real estate search space. Given the UK’s obsession with property, I think it’s well-placed to continue growing. It should benefit as the world becomes more digital. The forward-looking P/E here is about 34. That’s high, but not outrageous, in my view.
London Stock Exchange is also worth a mention. It’s a world-class company that has a strong competitive advantage due to its market position. I like the company a lot. The thing is, it’s quite expensive at present. Right now, the forward-looking P/E ratio is just a tad under 40. This is a FTSE 100 growth stock I’d be looking to buy in the next stock market crash.
