Perhaps he is not as well known as Warren Buffett, but Peter Lynch is often referred to as a legendary investor for good reason.

The Fidelity Magellan Fund which he managed from 1977 to 1990 averaged an annual return of 29% during his tenure thanks largely to his investing strategy. Rather than focus on blue-chip shares like Telstra Corporation Ltd (ASX: TLS), Lynch would focus on relatively undiscovered small-cap shares with explosive growth prospects.

Whilst we can only dream of making an average annual return of that level, I do believe that there are many small cap shares on the Australian Stock Exchange that would suit Mr Lynch’s criteria.

I’ve picked out four small caps which I feel could have a bright future:

Afterpay Holdings Ltd (ASX: AFY)

Afterpay is a fintech startup which is a relatively new listing to the ASX, hitting the boards at the start of May. The company allows consumers to buy items from a growing number of online stores from retailers such as General Pants Co, Tony Bianco, CUE, and Optus, but pay later without interest or fees. In February the company revealed merchant sales of around $2.8 million and revenue on those sales of about $100,000. This would indicate Afterpay is earning around 3.5% commission from retailers on its merchant sales. I would expect this service to grow in popularity with both consumers and retailers in the future, making Afterpay a worthy addition to your watch list today.

Catapult Group International Ltd (ASX: CAT)

Catapult is a leading sports analytics company operating in a market which is estimated to be worth $4.7 billion in a few years. The company has an ever-growing client list that currently includes leading sports clubs such as Real Madrid, Golden State Warriors, and Leicester City. One thing that stands out for me is the company’s low churn rate of around 1%. I believe Catapult is an exciting company that could be a fantastic long-term investment.

Money3 Corporation Limited (ASX: MNY)

Money3 is an Australian credit provider for personal and car loans. It just announced that it has secured a $20 million debt facility which will be used to maintain the strong growth momentum of its secured automotive loan business. The company is growing strongly and is expecting full year profit to come in at $19 million, up over 36% year-on-year. Another bonus with Money3 is that it is expected to pay an estimated fully franked 5.6% dividend in FY 2016.

REVA Medical Inc (ASX: RVA)

REVA is a clinical stage medical device company that has developed bioresorbable scaffolds to provide an alternative to metal stents. Metal stents are permanently implanted into an artery to treat coronary artery disease, whereas REVA’s bioresorbable scaffolds disappear naturally over a period of time when they’ve done their job. Clinical trials have been positive and the company looks to be positioning itself well in a global coronary stents market which is expected to be worth US$8.3 billion per year in 2019. It is early days and a little too speculative for my liking, but it has found a place on my watchlist.

These four small cap shares could be fantastic long-term investments, just like these three new breed blue chip shares. They pay fully franked dividends and could offer those all important share price gains for investors as well. All three shares are definitely worth a closer look, in my opinion.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.