Encore Capital Group (ECPG) 11% Gain $2,896

Business Description

Encore Capital Group, Inc. is a debt collection agency. They purchase portfolios of defaulted consumer receivables and work with individuals to repay their obligations. The two biggest factors that affect Encore Capital is the quality and size of their Receivable Portfolio. The larger and better quality their Portfolio, the more they can expect to collect.

Encore has a history of sourcing "high quality" defaulted consumer receivables (ironic). Historically, Encore has been able to collect at least 1.5x the value of the debt (see chart below). According to their 3Q 2020 report, their Investment Receivable Portfolio was worth about $3.2B. We know that they are able to collect at least 1.5x that value which gives us a $4.9B Portfolio. We take out debt of $3.2B and end up with $1.6B in Net Assets. This gives us a value of $52.54 per share.

Why I purchased

In November 2020, I purchased ECPG for about $32.95 per share. According to my valuation, ECPG had about 60% upside.

Why I sold

At the time of purchase, I was heavily invested in other stocks and did not have any additional capital. I though Encore was such a great company that I took on margin (borrowed capital) to purchase this stock. When the stock was down, I was very uncomfortable in the position which led me to sell out the majority of my holdings near breakeven.

Results

I ended up with $2,896 in profits or 11% gain on my investment.