Why Encore Capital Group is on investors’ radar
Encore Capital Group (ECPG) has been drawing attention after a strong recent share price move, with returns over the past month and past 3 months standing out against its longer term track record.
See our latest analysis for Encore Capital Group.
The recent momentum has been strong, with a 6.8% 1 day share price return adding to a 26.7% 30 day share price return and an 81.1% 1 year total shareholder return, which points to shifting expectations around Encore Capital Group’s earnings power and risk profile.
If Encore’s move has you looking beyond a single name, this could be a good moment to widen your search with our list of 19 top founder-led companies.
With Encore Capital Group trading at $68.29 and analyst targets sitting higher at $82.67, the recent rally raises a key question for you: is the stock still undervalued, or is the market already pricing in future growth?
Most Popular Narrative: 43.3% Undervalued
Joe222’s narrative pegs Encore Capital Group’s fair value at $120.38 per share versus the last close at $68.29, putting a sharp spotlight on the gap between narrative expectations and the current market price.
The company's ERC-Estimated remaining collections exceeds $5B. Its market capitalization is less than $1B, making its liquidation value more than its trading value. ECPG has stumbled. In its last earnings call, ECPG took a substantial write-down, mostly of goodwill related to its Cabot business. It was a management mistake to take write downs multiple times instead of doing it once and moving on. The failure to write down once and be done creates uncertainty and loss of confidence. Management also repeats its well-worn slogans about its business. This too is a mistake as it makes investors yawn. The company needs to at least discuss any new initiatives in analytics and AI. At a minimum, it should emphasize whatever it spends on R&D so that the market can gain confidence that ECPG is building a fence around its business and is more than a tired and old debt collection company. The company’s lack of urgency makes it an attractive takeover target. Its business is sound, but its management can be improved.
Curious how a business with this earnings profile, margin assumptions and future profit multiple gets to that $120.38 figure? The tension between solid collections, past write downs and future profitability is doing a lot of heavy lifting in this valuation story. If you want to see exactly which revenue path, margin shape and terminal multiple sit underneath that fair value, the full narrative lays it all out.
Result: Fair Value of $120.38 (UNDERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, you also have to weigh risks such as management execution after past write downs and the possibility that market sentiment on debt recovery businesses cools.
Find out about the key risks to this Encore Capital Group narrative.
Next Steps
If this mix of optimism and concern has you on the fence, take a moment to look through the details yourself and act while the story is still developing. Then round out your view by checking the 4 key rewards and 3 important warning signs.
Looking for more investment ideas?
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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