Can Red-Hot AIM Stocks Plus500 Ltd, Pantheon Resources Plc & Burford Capital Limited Double Again?

Roland Head asks if top performers Plus500 Ltd (LON:PLUS), Pantheon Resources Plc (LON:PANR) and Burford Capital Limited (LON:BUR) can continue to climb.

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Shares in online trading firm Plus500 (LSE: PLUS) have doubled over the last year. Will they double again in 2016?

Reliant on new customers

In its first-quarter update today, Plus500 said that revenue rose to $85.2m during the first quarter of 2016. That’s 4% more than during the first quarter of 2015 and suggests performance could exceed full year forecasts for revenue of $308.6m.

Plus500 may do well this year, but I’m concerned about the quality of the firm’s profits.

During the first quarter, 28,792 new customers made an initial deposit. The total number of active users was 67,821. Assuming that the majority of new customers made at least one trade, then around 40% of active customers were new customers.

To me, this suggests that many of Plus500’s customers don’t stick around very long — presumably because they lose money and stop trading. This business appears to be reliant on a constant stream of new customers.

Plus500 stock currently trades on a 2016 forecast P/E of 9.3, with a prospective yield of 7.6%. In my view, this cautious view is justified by poor long-term earnings visibility.

A bullish oil buy?

Shares in Pantheon Resources (LSE: PANR) have risen by 637% over the last year, giving this oil explorer a market cap of £310m.

There could be more to come. In early March, Pantheon raised $30m in a placing at 115p per share to fund future drilling. Investor demand for the new shares was strong, and the placing was reported to have been oversubscribed.

So far, Pantheon has flow-tested two wells, which delivered combined production of 2,250 barrels of oil equivalent per day (boepd). The firm believes that flow rates will improve significantly by fracturing one of the wells.

Commercial production is expected to start in the next couple of months, with further drilling due later this year. Investors following this stock believe that Pantheon’s East Texas acreage has significant low-cost production potential.

Personally, I think the firm’s share price is probably up with events. If I were a shareholder, I might be tempted to take some profits now in case future progress is slower than we’ve seen over the last year.

This legal stock could be profitable

Investors in litigation financing specialist Burford Capital (LSE: BUR) have seen the value of their stock double over the last year. Burford makes money by providing financing for legal cases. It then takes a cut of the damages if the case is successful. This is a fast-growing area and Burford has attracted a lot of interest.

In 2015, Burford’s operating profit rose by 27 per cent to $77.2m. Income from litigation investments rose by 82% to $86.9m. Current forecasts suggest that Burford’s profits will be flat in 2016, before returning to growth in 2017.

However, like insurance companies, Burford will always be at risk of suffering a run of loss-making cases. There’s also the potential for the firm’s activities to become more heavily regulated in the future.

At 290p, Burford shares trade on 14 times 2016 forecast earnings and offer a potential yield of 2.1 per cent. In my view, the stock looks fully valued. But I may be wrong. Star fund manager Neil Woodford increased his fund’s holding in Burford to more than 10% after the firm’s results were published in March.

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 has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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