Stock Analysis

Should You Be Adding Encore Capital Group (NASDAQ:ECPG) To Your Watchlist Today?

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NasdaqGS:ECPG
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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

In contrast to all that, I prefer to spend time on companies like Encore Capital Group (NASDAQ:ECPG), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

Check out our latest analysis for Encore Capital Group

How Fast Is Encore Capital Group Growing?

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. I, for one, am blown away by the fact that Encore Capital Group has grown EPS by 38% per year, over the last three years. That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. 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 35% to 38%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

earnings-and-revenue-history
NasdaqGS:ECPG Earnings and Revenue History September 1st 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).

Along with the insider buying, another encouraging sign for Encore Capital Group is that insiders, as a group, have a considerable shareholding. To be specific, they have US$26m 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?

Encore Capital Group's earnings have taken off like any random crypto-currency did, back in 2017. The incing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. Because of the potential that it has reached an inflection point, I'd suggest Encore Capital Group belongs on the top of your watchlist. We don't want to rain on the parade too much, but we did also find 2 warning signs for Encore Capital Group that you need to be mindful 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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