Burford Capital Limited (AIM:BUR): What are the future prospects?

Burford Capital Limited (AIM:BUR) is expected to grow its earnings 78.6% over the next year. Are you considering investing? Then keep reading. I’m going to look at the latest data and analyse this growth stock in more detail. See our latest analysis for BUR

Exciting times ahead for BUR

Analysts are predicting good growth prospects for Burford Capital over the next three years. The estimates for earnings per share range from $0.6 to $1.19 with an average expectation of 63.1% growth.

Burford Capital (AIM:BUR) Past Future Earnings Jul 12th 17
Burford Capital (AIM:BUR) Past Future Earnings Jul 12th 17
This means earnings will be above what has been seen in the past few years.

Revenue during the same time is predicted to rapidly grow from $163 Million to $326 Million in 2019 and profits (net income) are predicted to grow from $108 Million to $167 Million in 2019, roughly growing 1.5x. Margins are expected to be extremely healthy during this time as well.

Is the growth built on solid basis?

Burford Capital has outperformed the average growth in earnings of the Financial Institutions industry over the past year.

BUR has been performing remarkably well with a Return on Equity of 21.1%. This is above the Financial Institutions average of 12.61%. This is expected to further improve with the stock estimated to have an outstanding ROE of 18.9%.

Burford Capital (AIM:BUR) Future Perf Jul 12th 17
Burford Capital (AIM:BUR) Future Perf Jul 12th 17

Return on equity (ROE) is a measure of how much profit (net income) a company makes as a percentage of the shareholders equity. Equity is made up of funds from the original issuing of shares and any retained earnings from previous financial years. It varies considerably across sectors, for this reason it is important to asses a stocks ROE relative to its industry. Whilst it is true that the higher the ROE the better the company is performing, ROE does have a weakness. A stock with a disproportionate amount of debt can lead to a small equity base. Thus, a small amount of net income (the numerator) could still produce a high ROE off a modest equity base (the denominator). For this reason investors should always consider the debt situation in conjunction with ROE.

Conclusion

Burford Capital is a fast growing company, but as Warren Buffett’s right-hand man Charlie Munger said, “No matter how wonderful a business is, it’s not worth an infinite price“. Is BUR overpriced? Or could it be considered an undervalued opportunity? I recommend you see our latest FREE analysis to find out!

If you are not interested in BUR anymore, you can use our free platform to see my list of over 150 other stocks with a high growth potential.