Portfolio Recovery Associates, Inc. (PRAA)

Good tight business model that turns $1 of bad debt into $3 of real money. Don't tend to lower their standards just to get more business. The same trends that will help EPIQ ( higher debt, higher expenses due to the higher mortgage payments and less saving to weather a recession, among others ) will help PRAA).

Best company in the industry. Disciplined, shareholder aligned management. Simply WILL NOT overpay for debt. Conversely, will strike, and strike hard, when opportunity presents itself (witness Q4-05). Demonstrably undervalued

In choosing my first pick, I wanted a solid growth stock that I felt has the potential to be a multibagger within the next few years with little downside risk. It's asking a lot, but PRAA is a company positioned for an explosion.

Being in the bad-debt collection business, it sees two general cyclical phases: strong debt-buying periods, and strong debt-collection periods. A weak economy, such as the one we're in right now, is a strong debt-buying phase where there is a large supply of charged-off debt. Although it doesn't neccessarily mean that this debt is dramatically cheaper, it does mean that there are more debt portfolios to choose from, and the best debt underwriters will be best positioned to pick the portfolios that have the greatest potential for solid returns. It also means that there simply is more high-quality charged-off debt to buy, and PRAA has capitalized on this by establishing and increasing its credit line to purchase more debt the past few quarters than any other quarter in the company's history.

Of course, being in the debt-buying phase of the cycle comes with negatives. Collections are tougher, and management, in its quarterly calls, have acknowledged this fact. Still, the company is continuing to increase staffing in its call centers while aggressively training and cycling its collectors to ensure top performance. And though you probably won't see net income jump past expectations in the next couple quarters, PRAA is gearing up for a big boom once the economy recovers and people are better equipped to pay back their old debts.

They are buying massive amounts of cheap debt today. They also have opened a new collection center. Both of these are hurting short term results, but management has always had a great long term shareholder friendly attitude. PRAA around $40 - you won't be sorry in a year or two.

I really like this company especially in the current economy. Consumer debt is at an all time high, the savings rate is zero and the reason it's zero is the market and home ATM. It would appear that both sources of spending are slowing and the housing market is about done. Combine this with tightening of underwriting (reducing the ability to get cash out of the home) and we have the potential for people defaulting on various loans. When they do PRAA will be there to pick up the debt at a discount and bring home the bacon. Look at the ratios here P/E of 16.25 against the industry of 21.62 and a beta of .61 while the industry shows 1.31. Sales growth rate of 24.50% against the industry of 12.72%. ROA of 16.44, ROI of 17.76 and ROE of 21.42. This stock is on the move. I'm in and riding this elevator to the top floor. Sure it's a tough business... getting money out of people who either don't have it or don't want to give it up. Yikes I would never be able to do that. However these guys can. I believe in the future growth of this company and I like it's chances in this industry.

As of August 23, 2006 the stock has taken an undeserved hit. This has been a high margin business for PRAA and management has done exceptionally well on capital allocation. Although I like PRAA's future, I don't see a deep moat around this business. What extra value (and therefore pricing power) can PRAA give it's debt suppliers that their competitors can't? PRAA says that it has never had to terminate a deal which can save the supplier time and money. I'm not convinced this is such a powerful pricing tool. I ask myself whether or not this company will be doing the same thing it's doing now in 15 years and I think it will. There are risks of government regulation trying to prevent "big business" from "taking advantage of people in financial hardships". I think this is a 25%-30% chance. I've read that Buffett looks for businesses that could be run by any fool (no pun intended). I see the collection side being close to this type of business, but not the debt purchase side. One or two years of overpaying for defaulted debt could result in years of underperformance.

Funny that folks see us going into recession and claiming consumer is dead yet can't see upside to debt collector like PRAA. Hedge funds may generate irrational buying in near term but look to this solid player to be a long term prudent purchaser and long term winner.

It is the most consistant company I have ever analyzed. Management has beaten earnings every quarter for the company's 4 year history. Their consistancy in strategy and investment discipline leads me to believe management will be successful in taking this business from small cap range to mid-cap and maybe even large-cap range 5-10 years down the road.

The tailwind of consumer debt is strong and growing; throw in rising interest rates and a solid economy and you have an environment very well suited for PRAA. Consumers will default, but eventually be able to get jobs and pay off their debt.

There is a lot of money chasing bad debt in the private markets. However, this is not an easy business to be in, particularly if you are buying the debt outright as opposed to collecting on behalf of a company. As we have seen in the insurance industry, I feel a shakeout is coming which will lead investors to treat this market with more respect and caution. Its not a place to make a quick buck!

I bought this back in January when everything was a bargain at $30. I sold about a week later for $36 for a nice 20% gain. I was hoping for a big earnings upset today to bring the price down so I could buy again, but their outlook seems to be very stable, which is also a plus. I like that they are spending a lot of money on buying receivables right now. They are unloading their cash when collectables are a bargain, which should prove to be a profitable move in the upcoming years.

More likely than not a buy it and forget it kind of stock. PRAA can perform well in an up market, when its 'clients' are marginally better able to pay and PRAA can outperform their paper pricing predictions. They can also perform well in a down market, when higher volumes of paper is available for purchase leading to more attractove pricing opportunities. PRAA is the undisputed quality management leader in the space, and they have proven their ability to execute on both the collections side, with high quality training and relatively stable collecton force, and on the paper purchase side, with disciplined and rational purchase decisions. Buffett would be proud to see their lumpy purchase volume. Only question in my mind is valuation at this point, but hopefully this high quality business can grow into it's multiple.

Best in class company in an out-of-favor industry. Current priced at a discount. Business with a predictable future returns (just look at the spread between high and low revenue estimates) priced as a money loosing start-up. Anticyclical business thet will prosper in case of a slowing economy.

Finally jumping on this one after a recent price pullback; cash-generating machine with excellent management team that is prudently opportunistic; hedge against a faltering U.S. consumer

PRAA appears to be very well managed and consistently reinvests in buying additional debt. Growth is at a steady 20% and shows no signs of slowing. The stock appears to be slightly undervalued now with a P/E ratio less than 20.

In addition, PRAA should not be significantly impacted by the two items causing current stock market fluctuations: oil prices and interest rates.

hi how are you

After analyzing their year end report for 2005, I recognized that the expected revenue from their portfolios has been under-reported from the actual revenue realized in every annual report since the beginning -- by 50% or more. Combine that with accelerated amortization where they are still accruing small-but-material amounts of revenue from portfolios that have been completely written off, and the substantial growth in portfolio acquisition over the past 3 years, and there is an expectation of substantial 'hidden future revenue' because of their portfolio optimization. With the P/E of 17 in October 2006, it's priced as a modest growth stock consistent with the rate of portfolio growth on their conservative accounting. If they continue to achieve their historical realization rates, they may be underpriced by as much as 50%. As one of the larger players in this highly fragmented market, they have room to maintain that growth at the expense of smaller players.

When it comes to investing, I hate following the crowd....because 9 times out of 10 the crowd is wrong. However, with that said, I can't help but notice the intrinsic value of Porfolio Recovery Associates Inc. Not to mention the respect I have for Bill Mann's analyses of companies in general, and Bill's take on this company seems to be on track.

In addition....not to put too fine a point on it, but people are really stupid with their money these days. With more strictly enforced bankruptcy laws, Portfolio Associates Inc. is poised to capitalize on the continued monetary stupidity of our society.

This company has fat margins, good management, and a good little chunk of inside ownership. Using my valuation work as a guide, analysts project earnings growth of 18% over the next 5 years. Using a more conservative estimate of 10% in the analysis I did, it still shows this stock to have an intrinsic value of around $55-$56 per share. With a current price of around $47, that's enough of a discount for me. So, Go Long.

Fool On!!!

Several notable items lead me to rate this an underperformer:

1. 1 trillion of ARMs will reset over the next two years. PRAA focuses on consumer debt collections, and these will be placed on the defaulter's backburner as mortgage debt will take the higher priority.

2. Barriers to entry are fairly low, and competition has been driving up cost of default debt acquisitions, hurting margins.

3. The new congressional leadership can be expected to shift back to the side of defaulters when considering consumer credit and bankruptcy legislation.

4. The IRS now requires companies that write off a consumer debt greater than $600 to issue a 1099-C to taxpayers. This makes the cancellation of debt taxable to the individual taxpayer. All other issues aside, a defaulting consumer that pays tax on their debt relief will be very hard pressed to then pay off their debt to a collection agency.

Considering these trends, PRAA's share price should suffer over the short and mid-term. The shorts are right on this one.

Sadly, the population is getting deeper and deeper in debt and living far beyond their means. I don't see this trend changing anytime soon. As this keeps up, they'll be a huge pool of debt to buy.

What sets PRAA apart from their competitors is their management's patience when it comes to buying debt. I really (REALLY) like it!

They're not following their competitors' lead and buying every piece of debt they can get a hold of. PRAA is fine with waiting around until it falls to the right price (much long term investors ;-) ). This patience will pay hugely off in the long term.

America is hooked on debt. People have been well conditioned to buy, buy, buy - in debt up to their eyeballs.

This company thrives on debt and makes money from it.