I think these are the best growth stocks to buy now to build a £1m ISA

Roland Head looks at the FTSE 250 shares he rates as the best growth stocks to buy now and explains why they could help you build a £1m fund.

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I’m guessing you’d like to retire with a £1m stocks portfolio. Keeping your shares in an ISA to avoid tax should help your money to grow faster. But to make a million before you retire, you’ll also need to find the best growth stocks to buy today.

The stock market crash has slashed the valuations of many high-flying growth stocks. Many have bounced back strongly, but I think there are still some bargains to be found.

Today I want to look at two of my favourite growth stocks and explain why I think they could help you hit a million.

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A long-term winner

My first pick is price comparison firm Moneysupermarket.com (LSE: MONY). I’m sure this business needs no introduction, but you might be surprised at just how profitable it is.

Helping customers find cheaper credit cards, loans, insurance and energy suppliers generates big commission payments for Moneysupermarket. In 2019, the group generated an operating margin of 30% on revenue of £388m.

Although the coronavirus pandemic has hit demand for many popular financial products, I only see this as a temporary disruption. Moneysupermarket’s profits rose by 50% between 2015 and 2019, and the company is developing new services to support future growth.

City forecasts suggest profits will fall by around 10% in 2020, before rising by 15% in 2021. This puts MONY shares on a forecast P/E of about 17 for 2021, with a dividend yield of 4%. I rate the stock as a buy at this level. In my view, this is one of the best growth stocks you could buy today.

Under the radar: a top growth stock I’d buy now

IT specialist FDM Group (LSE: FDM) probably isn’t a company you’ve heard of. This FTSE 250 firm provides IT consulting services for clients. Areas where FDM works include software testing and development, project management and business analytics.

FDM directly employees all of its consultants (known as ‘Mounties’) so it can provide a consistent and reliable service to clients. The company is run by CEO Rod Flavell, who owns 7.5% of the stock, suggesting that his interests should be closely aligned with those of smaller shareholders.

Revenue topped £250m for the first time in 2019, generating an operating profit of £53m. Like Moneysupermarket, this business is highly profitable and generates a lot of surplus cash. This is used to fund continued growth and pay generous dividends.

FDM’s dividend is paused right now, but trading has remained stable so far this year. I expect dividend payments to restart fairly quickly.

The shares currently trade on 24 times 2021 forecast earnings. That may seem expensive, but I think FDM’s strong growth record and high profitability justify a high price. I’ve been buying more during the stock market crash.

Make a million quicker

The average long-term return from the FTSE 100 is 8% per year. My sums suggest that if you invest £250 per month in the FTSE within a tax-free ISA, you’d hit £1m after 41 years.

FDM and Moneysupermarket have generated average earnings growth of 15% per year since 2014. If you can build a portfolio of shares that generate this kind of growth, I estimate that you could build a £1m ISA in just 26 years.

That’s why I reckon these are two of the best growth stocks you can buy now.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Roland Head owns shares of FDM Group. The Motley Fool UK has recommended Moneysupermarket.com. 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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