Stock Analysis

Do Encore Capital Group's (NASDAQ:ECPG) Earnings Warrant Your Attention?

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NasdaqGS:ECPG
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It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Encore Capital Group (NASDAQ:ECPG). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

See our latest analysis for Encore Capital Group

How Quickly Is Encore Capital Group Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Encore Capital Group has grown EPS by 28% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Not all of Encore Capital Group's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. Encore Capital Group shareholders can take confidence from the fact that EBIT margins are up from 33% to 37%, and revenue is growing. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
NasdaqGS:ECPG Earnings and Revenue History April 10th 2021

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Encore Capital Group's future profits.

Are Encore Capital Group Insiders Aligned With All Shareholders?

Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Encore Capital Group top brass are certainly in sync, not having sold any shares, over the last year. But my excitement comes from the US$78k that Independent Director Wendy Hannam spent buying shares (at an average price of about US$31.01).

On top of the insider buying, it's good to see that Encore Capital Group insiders have a valuable investment in the business. To be specific, they have US$20m worth of shares. That's a lot of money, and no small incentive to work hard. Even though that's only about 1.7% of the company, it's enough money to indicate alignment between the leaders of the business and ordinary shareholders.

Should You Add Encore Capital Group To Your Watchlist?

You can't deny that Encore Capital Group has grown its earnings per share at a very impressive rate. That's attractive. The cranberry sauce on the turkey is that insiders own a bunch of shares, and one has been buying more. So I do think this is one stock worth watching. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Encore Capital Group that you should be aware of.

The good news is that Encore Capital Group is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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