Are these 2 growth stocks still a buy?

Investing in smaller companies has the benefit of providing exceptional growth potential to investors. However, they do come with their fair share of risk, and are certainly not for the feint-hearted.

Companies with smaller market caps go through the constant speculative pressures of investors and are therefore much more volatile than large-caps. But at the end of the day, a company’s business model and growth prospects is what’s important. If the company has a quality management that can build the foundation for growth, then you’re likely to reap some stellar returns in the future.

Here are two companies that offer ultra promising long-term tailwinds and I think current prices offer investors a great opportunity to own them.

Bentham IMF

Bentham IMF Ltd (ASX: IMF) is a litigation funder, relying primarily on Australia for its funding of litigation and arbitration claims. Bentham provides third-party funding for legal cases in exchange for a share of awards if it’s successful. To ensure higher success rates, its policy is to only invest in cases with a minimum claim of $2 million.

To succeed in this industry, companies must be able to mitigate their case risk and choose winners. Bentham has been very successful with its risk mitigation and in addition to setting a minimum claim, it has a superior selection process, achieving a 96% average success rate over the past 12 years (from 155 cases). High win rates are also complemented with domestic government regulations in favour of Bentham. This provides it with an unbeatable competitive advantage, laying the foundation for future earnings growth.

Bentham’s joint venture to fund European cases, in particular in the UK and Netherlands, is also seen as an exciting prospect to expand its revenue base into a much larger market, which has the potential to generate some incredible gains. The odds are certainly in favour of Bentham.

Trading on a very low price-to-earnings ratio of 10.94 and offering a fully franked dividend yield of 3.7%, Bentham looks like a winner and if I had some extra cash, I would definitely pile up on some more shares to boost my portfolio.

Shine Corporate  

Freshly listed law firm, Shine Corporate Ltd (ASX: SHJ) has interests primarily in the lucrative personal injury market and recently in the emerging practices areas. What particularly entices me is the large proportion of ownership held by insiders, meaning share price growth is in the best interest of the managers running the company.

Shine has recently undertaken two acquisitions as it slowly eats away its competition and gains a more dominant position in the legal industry. Despite these acquisitions, Shine holds a very low debt position and solid cash balance, giving it much more space for further strategic acquisitions. These acquisitions are attached with some strong long-term tailwinds that are the cornerstone to Shine’s future earnings growth.

Although it generates the bulk of its revenues in Queensland, Shine is also actively seeking to expand its exposure outside of the domestic economy. This follows the footsteps of major counterpart Slater & Gordon Limited (ASX:SHG), which has successfully executed its UK expansion.

Shine has seen some very strong gains in its first year of trading, yet it trades on a cheap price-to-earnings ratio of 15.4 and with analysts forecasting double-digit earnings growth for the next few years, Shine’s recent success is just the beginning to a long story of growth.

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I expect both of these companies to grow earnings rapidly in the next few years due to their quality management and exceptional long-term tailwinds. At current prices, Bentham is my pick of the two, given stronger, more concrete competitive advantages and a more attractive valuation.

However, Bentham doesn't offer a dividend nearly as big as The Motley Fool's top dividend stock for 2014 - 2015. Our top analyst identified one cheap and growing small-cap ASX stock with a 7% grossed-up dividend yield which I think is a standout buy today. Our top analyst dubbed this ultra-promising small-cap, "The Motley Fool's Top Dividend Stock For 2014 - 2015". Best of all: You can get the name and code of this ultra-promising stock for free! Simplyclick here to download your free copy of "The Motley Fool's Top Dividend Stock for 2014-2015" today.

Motley Fool contributor Aryan Norozi owns shares in Bentham IMF.

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