1 soaring penny stock I’d buy today at 88p

This Australia-based penny stock in the litigation funding sector has surged 28% in 2023. Can this positive momentum continue?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

A young Asian woman holding up her index finger

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Penny stocks can experience larger share price movements than more established companies. This means investors take on considerable volatility risk, but potential rewards can be attractive.

One small-cap share I’m eyeing up for my portfolio is Litigation Capital Management (LSE:LIT). The Sydney-headquartered business provides financial and risk management services associated with the legal industry. It has a particular focus on litigation and arbitration.

The share price has skyrocketed recently following the realisation of a highly successful direct arbitration investment. With a range of legal cases awaiting judgment, I think the AIM-listed stock has potential to climb higher. Here’s why.

A big win

Litigation Capital Management generates revenue by funding costly legal actions. If the claims it invests in are successful, the company stands to benefit. It also typically charges success fees.

Such investments can be highly profitable. Recently, the firm realised a spectacular 635% return on a longstanding confidential dispute in the London Court of International Arbitration. The company secured a gross profit of nearly £31m from an initial investment of £4.8m.

Further potential

There’s more to this business than one successful dispute. The group’s indicated a series of recent resolutions will likely lead to its “strongest performance to date by a significant margin” when its full-year results are reported in September.

What’s more, the business is exposed to dozens of projects that are due to mature over the coming months and years.

The direct investment portfolio is well-diversified. It spans class actions, arbitration, commercial disputes, competition claims, insolvency, intellectual property, and more. As of 28 February, 56% of the portfolio was concentrated in EMEA and 44% in the Asia-Pacific region. This diversification helps the company to perform well across different stages of the macroeconomic cycle.

Confident in their projections, the board’s announced a dividend of 2.25p per ordinary share in September. So not only could investors potentially benefit from future share price growth, but there’s a handy amount of passive income on offer too.


Litigation and arbitration are inherently unpredictable. Although the firm has a well-qualified team of experts who conduct due diligence on the legal and financial risks, the company will inevitably invest in unsuccessful claims. Bad investments can hurt revenues and, in turn, the share price.

In addition, the company operates in a highly regulated sector. A recent UK Supreme Court judgment will have considerable consequences for the litigation finance arrangements that are enforceable in the UK.

The decision’s expected to have a “very limited or no impact” on Litigation Capital Finance, according to the company. That’s because the group structures its funding contracts using a rising multiple of invested capital over time, rather than solely calculating the return as a percentage of the court’s award.

However, there’s a risk future legal changes might pose challenges for the business model. After all, the growth in litigation financing is a relatively recent phenomenon and the company is subject to a dynamic, evolving regulatory climate.

A stock I’d buy

This penny stock offers exposure to an exciting sector. Recent successes and a solid investment portfolio point to a bright future.

Although it faces potential challenges, the risk/reward profile looks attractive to me. If I had spare cash, I’d buy today.

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.

Charlie Carman has no position in any of the 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.

More on Investing Articles

Investing Articles

Will it be too late to buy Nvidia stock in March?

NVIDIA stock is up more than 60% since the start of 2024. Our writer considers whether it might still be…

Read more »

Typical street lined with terraced houses and parked cars
Investing Articles

Why did Direct Line shares just soar 27%?

Direct Line shares have jumped more than a quarter in the course of today's trading session. Our writer explains why…

Read more »

Close-up of British bank notes
Investing Articles

These 2 shares are Dividend Aristocrats. Which should I buy this March?

Our writer likes the business model of this pair of FTSE 100 Dividend Aristocrats. So why would he only consider…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

I bought 49 Unilever shares in June. Here’s what they’re worth today

Harvey Jones bought a modest amount of Unilever shares last summer hoping the stock would soon recover. He's having to…

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

I reckon these shares, potentially 20% undervalued, are Warren Buffett’s type of investment

Oliver Rodzianko thinks Games Workshop is an absolutely stellar investment. As it's potentially undervalued, he reckons Warren Buffett would agree.

Read more »

Calendar showing the date of 5th April on desk in a house
Investing Articles

Great investing habits that can boost my Stocks and Shares ISA

Forget complicated calculations and financial jargon! Our writer uses a few simple habits to build wealth inside his Stocks and…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Why has the St. James’s Place share price crashed 30%, after FY results?

The St. James's Place share price has just fallen off a cliff. What could have gone wrong in 2023 that's…

Read more »

Family in protective face masks in airport
Investing Articles

Here’s how much I’d have if I’d bought 1,000 Rolls-Royce shares 10 years ago

Rolls-Royce shares may be flying high this year but that wasn't always the case. I'm calculating how much I'd have…

Read more »