Why this super growth stock has room to run even after returning 150% in the last year

We've all seen the daytime TV adverts from lawyers promising to take injury cases to court with no up-front fee and only be compensated with a portion of the judgment if there is one. Well, there exists a similar situation in the higher stakes world of corporate litigation covering international arbitration disputes, patent infringement and bankruptcy hearings.

This is the niche £1.7bn market cap firm Burford Capital (LSE: BUR) has discovered and exploited with aplomb. In return for a stake of any proceeds from a positive judgment, the company will finance litigation that may drag out over years, bounce from jurisdiction to jurisdiction, and cost many millions of dollars.

Over the past year alone the company's stock has risen 169% as revenue and profits have grown by double-digits due to corporate clients and law firms turning to litigation finance as an attractive means of risk and budget management. In 2016 the company recorded a 59% rise in income to $163m and a 75% jump in post-tax profits to $115m.

I reckon there's plenty of room for the company to continue growing at this clip in the coming years. For one, the litigation market across the globe is absolutely massive and Burford has proven itself a valuable partner to all parties involved in complex international litigation scenarios.

Furthermore, the company is quickly ramping up investment to capture a larger share of this market. Last year it invested $378m in new litigation commitments, a marked increase on the $206m invested in 2015 or $153m invested in 2014. It may take several years for these new cases to pay off, but a stellar track record suggests they will. And with a return on equity of 21%, management has proven it invests wisely with long-term returns in mind.

Burford's shares are trading above historical valuations at 20 times forward earnings, but with massive cases winding their way through courts, I don't believe this is an extreme valuation given the company's growth potential.

Time to invest in this investor?

Another fast growing AIM-listed business with plenty of room to run is asset manager Brooks Macdonald (LSE: BRK). The £300m market cap firm has done phenomenally well of late thanks to above-market investment returns from many of its funds, as well as net fund inflows.

In the quarter to March assets under management (AuM) rose 6.45% quarter-on-quarter to £9.9bn due to £291m of new business and £311m in investment returns. For fund managers, increased AuM is of course their lifeblood and means of improving revenue and profits. And steadily rising AuM is feeding through to the company's income sheet with revenue up 17% in H1 to £45m and underlying pre-tax profits up 24% to £8.87m.

The reason I'm bullish on Brooks Macdonald when many other fund managers are struggling is that the company is growing rapidly from a small base both by consistently posting great investment returns and, perhaps even more critically, expanding distribution links.

By signing new strategic alliances and bringing on-board higher numbers of introducing firms, the company is putting its funds in front of an increasingly large group of retail and institutional investors. With great fund performance and increasingly wide distribution links I'm definitely interested in Brooks Macdonald if its shares dip from their current 22 times forward P/E.

A more appealingly valued firm is the Motley Fool's top small-cap of 2017, which currently trades at a bargain basement 8 times earnings. And unlike many firms valued this low, this company has a stellar record of growth with earnings growing by double-digits each of the past four years.

To discover why the Fool's analysts reckon this stock may satisfy both value and growth investors, simply follow this link for your free, no obligation copy of their report.

Ian Pierce has no position in any 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.

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