However, this operation is not an isolated event: On the same day, Mr. George Lund, the company’s executive chairman, actually sold exactly 350,000 shares, also at an average price of $28. So, rather than a very significant insider-buying event, this seems more like a hand-changing operation between two company insiders. The percentage of shares insiders own has therefore not changed.
Looking ahead
On May 9, the company reported EPS $0.86, beating the consensus estimate of $0.80 and representing a 23% increase with regards to the same quarter last year. Revenue was $144.3 million, slightly below analysts expectations of $150 million. The company’s revenue is up 14.1% compared to the same quarter last year. With regards to earnings, this report solidifies Encore Capital’s record of delivering better-than-expected earnings.
Encore’s capital strengths lie in its India-based low-cost collection platform, which has a sophisticated computer algorithm that determines which channel to send paper to. This collection platform does not only work for loans, and could be adapted to make it extensible to other places and asset classes. This would allow Encore capital to expand its collecting operations into tax liens or bankruptcy paper. The economic recovery is also good news for Encore: More people should be able to pay back their loans, therefore increasing the company’s revenue.
The stock has been dragged down by fears arising from the increased regulation by the Consumer Financial Protection Bureau (CFBP). The agency, founded as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, started operations in July 2011.
Since then, Encore Capital’s stock has lost about 3% in value, while the Dow Jones Industrial Average (INDEXDJX:.DJI) is up almost 25%. While it is true that increased regulations from the CFBP could make Encore Capital’s collecting strategies subject to more scrutiny, the company’s strengths do not lie in the engagement of unethical debt-collecting procedures, so the company should not suffer excessively from the existence of the bureau.
The stock price, however, has indeed been held back because of CFBP fears, which is why it is trading at such attractive valuations. If anything, these prices might be a good entry point to buy some of Encore Capital shares.
Bottom line
A solid business with potential growth opportunities, a stock price that has been excessively dragged down by fear, a history of positive earnings surprises, and very attractive valuation ratios should make value investors seriously consider adding Encore Capital shares to their portfolios.
The article An Undervalued Stock in the Credit-Services Industry originally appeared on Fool.com is written by Alex Bastardas.
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